Leveraged-loan prices may be overly optimistic on market risks, Bank of England official warns

9 May 2019 9:29pm
A senior Bank of England official expressed concern that leveraged-loan prices may not be taking market risks into account, potentially dashing investors’ expectations if stocks or bonds suddenly swing.

“A correction might come very quickly,” Jon Cunliffe, deputy Bank of England governor for financial stability, said in a speech Tuesday. “A very sharp correction in a relatively small asset class can have major repercussions”.

US subprime mortgage stock was only 13 percent of total US mortgage stock in 2006, shortly before the financial crisis, he said. In both the UK and US, Cunliffe added, leveraged lending has risen to levels higher than those before the 2007-09 crisis.