Leveraged loans: trouble in store

Leveraged loan defaults are at all-time lows. Consequently investors are buyinglower-rated paper, with less protection and less yield. Steven Miller warns that this trend is sowing the seeds for the next crash

In April the leveraged loan market’s default rate dropped to 1.3%, the lowest default rate on record since Standard & Poor’s Leveraged Commentary & Data started tracking loan defaults in 1998, edging past the prior nadir of 1.4% in February 1999.

The fact that credit fundamentals in the high-yield market have improved is clear from the diminishing default rate. And the result, in the form of tighter spreads and more aggressive credit structures, is equally apparent. In short, the near-term