The US continues to maintain a high leveraged loan default rate: risk warnings and market transmission logic

The leveraged loans (Leveraged Loans) default rate in the US has continuously exceeded 4% for 22 months. This prolonged cycle has matched the record of the 2008-2009 financial crisis, and it is still ongoing. From a historical perspective, high default rates above 4% have only occurred three times: first during the financial crisis, second during the pandemic impact in 2020, and third — notably, both previous instances led to economic recessions. The most noteworthy aspect is not the absolute level of the default rate each month, but the prolonged high default state. This means that the current credit issue does not stem from a temporary liquidity shock but from the ongoing pressure of a high-interest-rate environment on corporate cash flows and refinancing capacity — the significance of this prolonged pressure warning is much greater than short-term volatility. Leveraged loans mainly target companies with weaker creditworthiness, higher debt ratios, and this group is also the most sensitive to interest rate fluctuations within the entire credit system. When the default rate of these assets remains high over an extended period, it often indicates that companies have been unable to recover through operational improvements or refinancing, and can only passively deplete their remaining cash flows. The deteriorating credit trend becomes difficult to reverse. Unlike the 2008 financial crisis, the risk in this cycle is not primarily concentrated in the banking system but mainly in private equity funds, mortgage-backed loans (CLO), and the non-bank credit system. The risk does not explode in a concentrated burst but is released more slowly and dispersed. This also explains why macroeconomic data appears stable on the surface, yet credit pressures continue to accumulate — this dispersed risk release model slows down the direct impact on the macroeconomy but does not eliminate underlying risks. According to economic cycle laws, credit is always a leading indicator. When the leveraged loan default rate remains high for a long time, corporate investment, M&A, and capital expenditure activities are usually restricted, and this effect gradually spreads to employment and consumption sectors. Therefore, the current default data does not indicate that the economy has entered a recession, but clearly warns: if the high-interest-rate environment persists, the likelihood of a recession will continue to rise. Put simply, if the US Federal Reserve does not adjust the high-interest-rate environment, the risk of recession or even a full-blown downturn will increase significantly. In this context, risk pricing for risky assets will become more stringent, and investment strategies that do not rely on market trends but focus on cash flow stability and structural profitability will dominate the market. The overheating phenomenon in the AI sector is a typical example — the high activity level in AI drives revenue growth, improves fundraising environments, and expands market space, precisely aligning with the current market’s core demand for “certain profits.” Conversely, cryptocurrencies like Bitcoin heavily depend on liquidity support, making it difficult to generate stable cash flows, and thus more sensitive to liquidity fluctuations and policy adjustments. However, I still believe that Bitcoin has a strong correlation with technology stocks — if not, its price would probably have halved long ago. $BTC