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Big Debt Crushes Industry Giants – Are Bonds Next?

April 16, 2018

Debt kills.

It helped bring down the Roman Empire. It’s taken down moguls and companies alike.

And as interest rates rise, we could find ourselves in a bond bubble created by debt.

How so?

Look at the firms declaring bankruptcy or liquidating – Toys “R” UsiHeartMedia, and Claire’s, to name a few. Each an industry giant, debt overcame them all, and the bond market is feeling it.

iHeartMedia can’t afford its $1.8 billion debt payments on its $20 billion in debt. Claire’s hopes to shed $1.9 billion in debt. And there are probably more coming – it’s only a matter of time before the default rate rises intensely.

Treasury notes of 5- and 10-year maturities have doubled since July 2016, meaning companies are being charged higher rates on new loans. So, outstanding debt will become more expensive when it’s refinanced in a few years.

How does this all end?

The writing on the wall points to debt continuing to mount, which could trigger a credit crunch. Plus, huge amounts of debt could be eliminated altogether.

From the looks of it, the storm is en route. Take cover.

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