Paramount Pictures Steve Carell as Mark Baum in The Big Short. Baum was based on Steve Eisman.
- Steve Eisman, the hedge fund manager famous for betting against the US housing market ahead of the 2008 crash, is sounding the alarm on the spectacular rise of poorly rated debt among corporations.
- Eisman - who was a central figure in the book, and subsequent film, 'The Big Short' - told the Financial Times that the rising stock of corporate debt rated at BBB, just one notch above junk status, is a cause for serious concern.
- Stocks of such debt have more than quadrupled since the crisis, standing at around $2.7 trillion.
Steve Eisman, the hedge fund manager famous for betting against the US housing market ahead of the 2008 crash, is sounding the alarm on the spectacular rise of poorly rated debt among corporations.
Eisman - who was a central figure in the book, and subsequent film, 'The Big Short' - told the Financial Times that the rising stock of corporate debt rated at BBB, just one notch above junk status, is a cause for serious concern.
Stocks of such debt have more than quadrupled since the financial crisis, standing at around $2.7 trillion, according to the Bloomberg Barclays index, which tracks corporate debt issuance.
According to the FT, Eisman's concern is not with the actual amount of debt, but with the fact that major banks have cut the amount of trading capacity they have for BBB rated debt. As a result, he says, when the next recession does come, the only way to sell such debt will be to do so at a big discount, costing funds and asset managers.
Rising stocks of risky and badly-rated corporate debt have become a major worry for many in the markets, with the growth of leveraged loans a particular concern.
The major surge in debt issuance by US corporations through highly levered buyouts and low-interest-rate acquisitions could be a major part of the next financial crisis, research firm CLSA said in a note last week.
Eisman, however, is marginally less concerned, saying that he does not see a recession on the horizon imminently.
"You can't have a recession when consumer credit quality is as good as I've seen it in my whole career," Eisman, who is now a portfolio manager at Neuberger Berman in New York, told the FT.
Since gaining recognition beyond the financial sphere after the book's publication, Eisman has been a vocal market commentator, and in the past couple of years in particular he has warned frequently about the health of European banks, particularly those in Italy and Germany's biggest lender, Deutsche Bank.
In November last year Eisman said he is shorting two British bank stocks in anticipation that the UK falls out of the European Union without securing an exit deal.