There are signs of problems emerging in the U.S. credit market that could also hurt stocks and the global economy, a strategist told CNBC on Tuesday.
Companies and governments use credit markets to issue debt and obtain new financing. In the wake of the sovereign debt crisis, central banks decided to intervene in the credit market by buying high levels of debt — a step aimed at revamping their own countries’ economies.
However, as the global economy has improved, central banks have started to ease these debt purchases for the past year or so. According to Michael Howell, chief executive officer at global research group Crossborder Capital, as monetary policy tightening takes place, there could be strong consequences for credit markets.
“Our concerns are, looking over the next 12 months, looking into the U.S. economy (in) 2019, it looks as if a credit problem may be emerging and that’s what the yield curve is principally telling us,” Howell told CNBC’s “Squawk Box Europe.”
“I think there are risks in credit, (because) there’s been a huge spiralling of credit issuances over the last few years; a lot of companies have gone outside of banks to raise money and those deals have been priced very aggressively. Look at spreads, they are very tight — they shouldn’t be as tight as they are.”
Spreads compare the difference between U.S. Treasurys and corporate bonds. If they are tight, the interpretation that the market makes is that those corporate bonds are not very risky.
But, according to Howell, the image that the spreads are showing at the moment is incorrect.
“There’s a huge anomaly between what the U.S. yield curve is telling you and what the U.S. credit markets are saying,” he added.