basically the total amount of corporate debt has jumped, but corporate debt defaults have also decreased sharply
aka corporate debt has become safer, and investors are buying it up because it has been relatively safe and provided attractive returns
if interest rates begin to rise, corporate debt defaults could start increasing, potentially severely. mass defaults could trigger another crisis
"New McKinsey Global Institute research finds that one-quarter of corporate bonds in Brazil, China, and India are from companies that are already at higher risk of default even at today’s low interest rates.
If interest rates were to rise by 200 basis points [2%], that share could rise to as much as 40 per cent. In advanced economies, most corporate borrowers are in good financial shape, but there are pockets of acute vulnerability, for instance, among speculative-grade borrowers, and in certain sectors like energy and retail...
Is the next global financial crisis at hand? We do not think so. Unlike the subprime mortgages that sparked the previous financial crisis, defaults in the corporate bond market are unlikely to have significant ripple effects across the system.
While mortgages were packaged into securitised assets and multiple layers of synthetic securities were built upon them, the same is not true of corporate bonds. Losses will therefore be sustained by the direct bond owners, but the systemic risks seen in the previous crisis are minimal."
i agree, and a 2% increase in interest rates doesn't seem anywhere near possible with today's current combination of low productivity growth, low global capital demand, and easy liquidity (granted QE is starting to wrap up in the EU at least and the US is toying with the idea of raising rates against Trump's will)
of course this is a McKinsey economist/investment manager somewhat talking their book, so draw your own conclusions, but the FT article on the state of the corporate debt is much more well-researched and written
PS subscribe to and read the FT, you won't regret it. this CNBC coverage is complete garbage
[1] https://www.ft.com/content/bc1d327a-91c1-11e8-bb8f-a6a2f7bca...