[Annotated] Where will the next crisis occur?

Corporate debt could be the culprit^[각주:1]

Interest rates are^[각주:2] heading higher and that is likely to put financial markets under strain^[각주:3]. Investors and regulators would both dearly love to^[각주:4] know where the next crisis will come from. What is the most likely culprit^[각주:5]?

Financial crises tend to involve one or more of these three ingredients: excessive^[각주:6] borrowing^[각주:7], concentrated bets, and a mismatch between^[각주:8] assets^[각주:9] and liabilities^[각주:10]. The crisis of 2008 was so serious because it involved all three - big bets on structured products^[각주:11] linked to the housing market^[각주:12], and bank-balance sheets^[각주:13] that were both overstretched^[각주:14] and dependent on short-term funding. The Asian crisis of the late 1990s was the result of companies borrowing too much in dollars^[각주:15] when their revenues were in local currency^[각주:16]. The dotcom bubble had less serious consequences than either of these because the concentrated bets were in equities^[각주:17]; debt did not play a significant part. 

It may seem surprising to assert that^[각주:18] the genesis of^[각주:19] the next crisis is probably in corporate debt^[각주:20]. Profits have been growing strongly^[각주:21]. Companies in the S&P 500 index are on target for a 25% annual gain once all the results for the first quarter are published. Some companies, like Apple, are rolling in cash^[각주:22]. 

But plenty are not. In recent decades companies have sought to make their balance-sheets more "efficient" by raising debt and taking advantage of the tax deductibility of^[각주:23] interest payments. Businesses with spare cash have tended to use it to buy back shares, either under pressure from^[각주:24] activist investors or because doing so will boost the share price^[각주:25] (and thus the value of executives' options). 

At the same time, a prolonged period of^[각주:26] low rates has made it very tempting to take on more debt^[각주:27]. S&P, a credit-rating agency^[각주:28], says that as of 2017, 37% of global companies were highly indebted^[각주:29]. That is five percentage points higher than the share in 2007, just before the financial crisis hit. By the same token^[각주:30], more private-equity deals^[각주:31] are loading up on lots of debt^[각주:32] than at any time since the crisis. 

One sign that the credit quality of^[각주:33] the market has been deteriorating is that^[각주:34], globally, the median bond's rating has dropped steadily since 1980, from A- to BBB-. The corporate-bond market is divided into^[각주:35] investment grade^[각주:36] (debt with a high credit rating^[각주:37]) and speculative^[각주:38], or "junk", bonds^[각주:39] below that level. The dividing line is^[각주:40] the BBB rating. So the median bond is now junk. 

Even within investment-grade debt, quality has gone down. According to PIMCO, a fund-management group, in America 48% of such bonds are now rated BBB^[각주:41], up from 25% in the 1990s. The companies that issue them are also more heavily indebted than they used to be. In 2000 the net leverage ratio for^[각주:42] BBB issuers was 1.7. It is now 2.9. 

Investors are not demanding higher yields to^[각주:43] compensate for^[각주:44] the deteriorating quality of^[각주:45] corporate debt; quite the reverse^[각주:46]. In a recent speech during a conference at the London Business School, Alex Brazier, the director for financial stability at^[각주:47] the Bank of England, compared the yield on corporate bonds with^[각주:48] the risk-free rate^[각주:49] (the market's forecast for the path of^[각주:50] official short-term rates). In Britain investors are demanding virtually no excess return on^[각주:51] corporate bonds to reflect the issuer's credit risk^[각주:52]. In America the spread is at its lowest in 20 years^[각주:53]. Just as low rates have encouraged companies to issue more debt, investors have been tempted to buy the bonds because of the poor returns available on cash. 

Mr Brazier also found that the cost of insuring against a bond issuer failing to repay, as measured by the credit-default-swap market^[각주:54], fell by 40% over the past two years. That makes it seem as if investors are less worried about^[각주:55] corporate default. But a model looking at the way that banks assess^[각주:56] the probability of default^[각주:57], compiled by^[각주:58] Credit Benchmark, a data-analytics company, suggests that the risks have barely changed over that period. 

So investors are getting less reward for the same amount of risk^[각주:59]. Combine this with the declining^[각주:60] liquidity of^[각주:61] the bond market (because banks have withdrawn from^[각주:62] the market-making business^[각주:63]) and you have the recipe for the next crisis^[각주:64]. It may not happen this year, or even next. But there are already ominous signs^[각주:65]. 

Matt King, a strategist at Citigroup, says that foreign purchases of American corporate debt have dried up^[각주:66] in recent months^[각주:67], and the return on investment-grade debt so far this year^[각주:68] has been -3.5%. He compares the markets with a game of musical chairs^[각주:69]. As central banks withdraw monetary^[각주:70] stimulus^[각주:71], they are taking seats away. Eventually someone will miss a seat and come down with a bump^[각주:72]. 

1. culprit ; 1. 범인 ;; 2. (문제를 일으킨) 장본인 [본문으로]
2. interest rate ; 금리, 이율 [본문으로]
3. strain ; 1. [[UC/]] 팽팽함, 긴장 ;; 2. [UC/] (심신의) 긴장; 피로, 피곤, 과로; [C] 큰 부담 ((on)) ;; 3. (무리한 사용으로 발·등 등을) 접질림, 삠 ;; 4. [[UC/]] (물리) 스트레인, (응력) 변형((應力)變形) ;; 5. 크게 애씀, 노력, 분투 ;; 6. 유창한 변설 [본문으로]
4. dearly ; 1. 대단히, 몹시 ;; 2. 비싼 대가[희생/비용]를 치르고 [본문으로]
5. likely ; 2. 그럴듯한, 그럴싸한 [본문으로]
6. excessive ; (more excessive; most excessive) 과도한(<참고> moderate); 과다한; 터무니없는; 극단적인. [본문으로]
7. borrowing ; 1. [[U]] 차용 ;; 2. 차용어; 빌린 것 ((of)) [본문으로]
8. mismatch ; ~ (between A and B) (사람・사물들 간의) 부조화, 어울리지 않는 조합 [본문으로]
9. asset ; 2. [주로 복수로] (특히 부동산과 같은) 자산, 재산 ;; 참고 ; liability [본문으로]
10. liabilities ; (회계) 부채 [본문으로]
11. structured product ; (경제) 구조화된 상품 ;; structured ; [형용사] 구조[구성, 조직]가 있는; 카르텔화한. [본문으로]
12. housing market ; [명사] 주택 시장 [본문으로]
13. bank-balance ; [명사] 은행 (예금) 잔고 [본문으로]
14. overstretch ; [타동사][VN] ~ sb/sth/yourself (특히 英) 감당할 수 있는 것 이상을 하다[하게 하다] [본문으로]
15. in dollars ; 달러로 [본문으로]
16. local currency ; 국내 통화, 지역 화폐 [본문으로]
17. equity ; 1. [U] (금융) (한 회사의) 자기 자본; (자산의) 순수 가치 ;; 참고 ; negative equity ;; 2. [pl.] equities (금융) 보통주(株) ;; 3. [U] (격식) 공평, 공정 ;; 4. [U] (법률 특히 英) 형평법 [본문으로]
18. assert ; 1. (사실임을 강하게) 주장하다 ;; 2. [타동사][VN] ~ yourself (단호하게) 자기주장을 하다 ;; 3. [타동사][VN] (자신의 권리・권위 등을) 확고히 하다 ;; 4. [타동사][VN] ~ itself 발휘[행사]되기 시작하다 [본문으로]
19. genesis ; (pl.-ses[-si:z]) 1. [보통 the g-] 기원(起源), 일어남, 발생, 창시(創始)(origin, production, creation) ; 발생의 양식[유래], 내력(來歷). ;; 미국·영국 [|dƷenəsɪs] [본문으로]
20. corporate debt ; 기업 부채 [본문으로]
21. profit ; 1. [때로 pl.] 이익, 이득, 수익(收益)(pecuniary gain) ; 이율(ratio of profit) ; [경제] 이윤. ;; 2. [보통 pl.] (자본·보험에 대한) 이자(interest). [본문으로]
22. roll ; 12. [구어] 시작하다; (제약·방해 없이) 나아가다, 전진하다. [본문으로]
23. tax deductibility ; (사회복지학) 조세공제제도 [본문으로]
24. pressure from ; …로부터의 압력. [본문으로]
25. boost ; 3. <가격을> 인상하다; <생산량을> 증가하다; <사기·기력 등을> 돋우다 [본문으로]
26. prolonged period ; 오랜 기간, 장기간 [본문으로]
27. take on debt ; 부채를 떠안다, 부채를 유지하다, [본문으로]
28. credit rating agency ; (금융투자) 제3자 신용등급기관 [본문으로]
29. indebted ; 2. (국가・정부 등이 다른 국가・단체 등에) 부채가 있는 [본문으로]
30. by the same token ; 이것으로 보면, 게다가, 같은 이유로(=for a similar reason) [본문으로]
31. private equity ; Private equity typically refers to investment funds organized as limited partnerships that are not publicly traded and whose investors are typically large institutional investors, university endowments, or wealthy individuals. Private equity firms are known for their extensive use of debt financing to purchase companies, which they restructure and attempt to resell for a higher value. Debt financing reduces corporate taxation burdens and is one of the principal ways in which private equity firms make business more profitable for investors. Private equity might also create value by overcoming agency costs and better aligning the incentives of corporate managers with those of their shareholders. [본문으로]
32. load up on ~; ~을 가득 확보하다, (음식, 음료)를 많이 먹다, 섭취하다, ~을 증가시키다, 가중시키다 [본문으로]
33. credit quality ; (증권·금융) 신용 상태, 신용 여건. [본문으로]
34. deteriorate ; [타동사] 나쁘게 하다, 악화시키다(make worse, worsen)(opp. meliorate) ; 열등하게 하다, …의 질[가치]을 저하시키다(lower in quality or value). ;; [자동사] (질이) 나빠지다, 악화하다(grow worse) ; (소질이) 저하하다, 타락하다, 퇴폐하다(degenerate) ; (건강이) 나빠지다, 쇠약해지다(opp. ameliorate). [본문으로]
35. be divided into ; ~로 나뉘다, 분리되다 [본문으로]
36. investment grade ; (증권) 투자 적격 증권 [본문으로]
37. credit rating ; [명사] 신용 등급[평가] [본문으로]
38. speculative ; 1. 추측에 근거한 ;; 2. 뭔가를 가늠하려는[헤아려 보려는] 듯한 ;; 3. (사업 행위가) 투기적인 [본문으로]
39. junk bond ; [명사] (상업) 정크 본드(수익률이 아주 높지만 위험률도 큰 채권) [본문으로]
40. dividing line ; [주로 단수로] 1. (두 개의 사물・사상을 구분하는) 경계선 ;; 2. (두 지역을 나누는) 경계지 [본문으로]
41. rate ; [진행형으로는 쓰이지 않음] 1. ~ sb/sth (as) sth | ~ as sth (특정한 수준으로) 평가하다[여기다]; 평가되다[여겨지다] ;; 3. [주로 수동태로] 등급[순위]을 매기다 [본문으로]
42. leverage ratio ; A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans), or assesses the ability of a company to meet its financial obligations. The leverage ratio is important given that companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay its debts off as they come due. [본문으로]
43. yield ; 2. 보수; 이윤율, 이익 배당 [본문으로]
44. compensate for ; 보상하다, 보충하다 [본문으로]
45. deteriorating ; 악화중인, 악화되어가고 있는 [본문으로]
46. quite the reverse ; 그 정반대 ;; the very reverse [본문으로]
47. financial stability ; 재정적, 경제적 안정 [본문으로]
48. corporate bond ; [명사] 회사채(會社債), 기업 채권 [본문으로]
49. risk-free rate ; (증권) 무위험이자율 [본문으로]
50. forecast ; [명사] 1. 예측, 예상[for, that(節)]. [본문으로]
51. excess return ; [명사] 초과이익률 [본문으로]
52. credit risk ; 신용 리스크 ((채무 변제 불능의 위험성이 있는 채무자, 또는 그 위험성)) [본문으로]
53. spread ; 9. FINANCE | [U] 차액, 마진 [본문으로]
54. Credit Default Swap (CDS) ; A credit default swap is a particular type of swap designed to transfer the credit exposure of fixed income products between two or more parties. In a credit default swap, the buyer of the swap makes payments to the swap’s seller up until the maturity date of a contract. In return, the seller agrees that, in the event that the debt issuer defaults or experiences another credit event, the seller will pay the buyer the security’s premium as well as all interest payments that would have been paid between that time and the security’s maturity date. [본문으로]
55. be worried about ; ~에 대해 걱정하다 [본문으로]
56. assess ; 1. ~ sb/sth (as sth) (특성・자질 등을) 재다[가늠하다] ;; 2. [타동사][VN] ~ sth (at sth) (가치・양을) 평가[사정]하다 [본문으로]
57. probability of default ; 예상부도율, 부도예상율 [본문으로]
58. compile ; 1. 〔자료〕를 모으다, 하나로 종합하다, 집계하다. ;; 2. (자료를 모아) 〔책〕을 편찬하다, 편집하다. [본문으로]
59. amount ; 2. [특히 불가산 명사와 함께 쓰여] ~ (of sth) (무엇의) 양 [본문으로]
60. declining ; 기우는; 떨어지는, 하락하는; 쇠퇴하는. [본문으로]
61. liquidity ; [U] (금융) (자산의) 유동성, 환금성 ;; 미국∙영국 [lɪ|kwɪdəti] [본문으로]
62. withdraw ; 1. ~ (sb/sth) (from sth) (뒤로) 물러나다, 철수하다; 빼내다, 철수시키다 ;; 2. [타동사][VN] ~ sth (from sth) (제공 등을) 중단[취소/철회]하다 [본문으로]
63. market maker ; A market maker is a "market participant" or member firm of an exchange that also buys and sells securities at prices it displays in an exchange’s trading system for its own account which are called principal trades and for customer accounts which are called agency trades. Using these systems, a market maker can enter and adjust quotes to buy or sell, enter, and execute orders, and clear those orders. Market makers exist under rules created by stock exchanges approved by a securities regulator. In the U.S., the Securities and Exchange Commission is the main regulator of the exchanges. Market maker rights and responsibilities vary by exchange, and the market within an exchange such as equities or options. [본문으로]
64. recipe ; 2. ~ for sth (특정 결과를 가져올 듯한) 방안[비결] ;; 미국∙영국 [|resəpi] [본문으로]
65. ominous ; 1. (…에게) 불길한, 조짐이 나쁜[for]; 기분이 나쁜, 험악한. ;; 2. (…의) 전조[조짐]가 되는[of]. ;; 미국식 [|ɑ:mɪnəs] 영국식 [|ɒmɪnəs] [본문으로]
66. dry up ; 1. 강·호수 등이 바싹 마르다[말라붙다] ;; 2. (공급이) 줄어들다[고갈되다] ;; 3. (무슨 말을 해야 할지 몰라서) 갑자기 말을 멈추다 [본문으로]
67. in recent months ; 최근 몇달간 [본문으로]
68. so far this year ; 올해 들어 지금까지 [본문으로]
69. musical chairs ; [U] 1. 의자에 먼저 앉기 놀이(음악을 들으며 한 줄로 늘어선 의자 주위를 뛰어 다니다가 음악이 멈추면 의자를 차지하고 앉는 아이들 놀이. 의자에 못 앉는 사람은 탈락하게 됨) ;; 2. (흔히 못마땅함) (사람들의 직장・지위) 이동이 심한 상황 [본문으로]
70. monetary ; 1. 화폐의, 통화의 ;; 2. 금전(상)의; 금융의, 재정(상)의(financial) [본문으로]
71. stimulus ; (pl. stim・uli / -laI /), [~ (to/for sth) | ~ (to do sth)] 1. [주로 단수로] 자극제, 자극[고무/격려](이 되는 것) [본문으로]
72. with a bump[flump] ; 덜컥 소리내며 [본문으로]