The days of free money have officially ended, with the Federal Reserve taking interest rates up this month for the first time in nearly a decade. Though the full scale of the decision's repercussions has yet to be revealed, the U.S. distress ratio hit 20.1 percent in November, the highest it has been since hitting 23.5 percent back in September 2009, according to USA Today.
The U.S. distress ratio is a measure of the amount of risk the market has priced into bonds. With the current levels, the ratio serves as an onerous indicator that takes investors back to the days of the last major recession.
The increase in the distress ratio is primarily attributed to oil and coal prices simultaneously falling to unforeseen lows. Due to the quick decrease in the prices of these commodities, the bonds and loans of energy companies lost much of their value. Soon, the effects spread through other industries, from materials to retail to industrials, reports The Daily Herald.
Michael Carley, former co-head of distressed debt at UBS Group AG, said the problem has continued to spread.
"It's like cancer. It's spreading throughout the body. If you look at all the segments in high-yield, chemicals, metals and mining, utilities, retail, health care, they're all impacted," he said.
The trend does not seem to show any signs of slowing down, either, with oil prices continuing to fall on Monday after weak industrial data from Japan incited serious reservations about the global economy's pace in the coming year, according to The Wall Street Journal.
The oil and gas sector currently shows the highest level of distressed debt, standing at 37 percent. The metals, mining, and steel industry are also showing an alarming level of distressed debt, with a 72 percent distress ratio.
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