Loan Happy 💸

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Loan Happy

As we were all taught, taking heavy, leveraged loans can come back to bite you. Defaulting on your debt isn’t exactly the best thing to do, and we’ve seen how countries’ economies have collapsed as a result. College students are mostly protected by the government regarding student loan debt, but others aren’t. However, that’s not really stopping them from exploring risky loans.

Currently, the US leveraged finance market is over 3 trillion dollars, the first time in history it has crossed that mark. This includes leveraged loans and high yield bonds, and the number has increased by 130 percent since the 2008 financial crisis. The reasoning behind this? To fuel the economic recovery, interest rates have been relatively low for the past decade, which encouraged people to chase yields. Along with this, creditors, the people who you owe money to, are being offered the least amount of protection since 2016, which would leave them in trouble if the borrower defaults.

Luckily, leveraged loan defaults aren’t occurring much now. The current rate of defaults is 1.5 percent, which is a major decrease from the previous peak of 4.5 percent. Sectors like technology have the lowest chance of default, and energy has the highest chance of default. However, the Delta variant could pose a major problem. Any resurgence in COVID-19 could increase the number of defaults, which would be a problem for the economy. Do you think the number of defaults will continue to decline or will it see an increase?

I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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