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Problems loom for US credit markets and the global economy, strategist says – CNBC

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 merging and that’s what the yield curve is principally telling us,” Howell told CNBC’s “Squawk Box Europe.”

So, while the yield curve is signalling upcoming problems, credit market spreads aren’t doing the same and remain tight. Howell believes it is just a matter of time until the credit market catches up and the spreads widen.

A widening in credit spreads mean that U.S. Treasury markets are favored over corporate bonds — indicating that there is more risk and that economic conditions are expected to deteriorate.

In a note earlier this month, Crossborder Capital said that wider spreads are not just a risk for the United States, but also to other international markets, “such as European high-yield and emerging markets credits” that “could be sucked into the vortex.”

Problems loom for US credit markets and the global economy, strategist says, CNBC, Jul 31
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