Deutsche Bank: The US and Europe are Facing a Wave of Defaults
The US and Europe are facing a wave of defaults, according to research released by Deutsche Bank on May 31.
Deutsche Bank warns that the default rate on loans in the US could reach 11.3%, higher than the 7.7% recorded during the tech bubble in 2000 and near the all-time high of 12% during the global economic crisis in 2007-2008. Moreover, the bank's modeling is showing a 35-40% chance of the US economy entering a recession, the highest level since the pandemic.
Meanwhile, Europe seems to have a lower default rate compared to the US due to a higher ratio of quality bonds and greater fiscal support. However, the high-yield bond market in Europe is dominated by the real estate sector, accounting for more than half of high-yield bad loans.
Despite efforts to pump more capital and launch more fiscal stimulus packages and future interest rate cuts, Deutsche Bank warns that these moves may not prevent the default rate from rising. The banking industry also faces more serious troubles since early March, with regulators shutting down Silicon Valley Bank (SVB) and Signature Bank and several other regional banks facing trouble.
In conclusion, the looming wave of defaults in the US and Europe signals the need for investors to re-evaluate their strategies. With tighter credit conditions and a higher risk of recession, selling now may be the wisest decision for investors.
Deutsche Bank: The US and Europe are Facing a Wave of Defaults
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