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Since mid-2015, 3 month USD LIBOR has soared from a low of approximately 22.5 basis points to its current level of 115 basis points.
It is now more than 5 times higher than two years ago. Banks have vacated their previous role of market makers. The demand for corporate debt and in particular junk debt has been enormous, and corporations have obviously sated it by producing more debt than ever before. Such a scenario implies a latent risk, one that keeps growing and is ready to bust.
Rising interest rates and a slowdown in credit growth imply that this precondition is very likely to prevail when the next batch of problems shows up.
Learn the impacts of rising LIBOR in this in-depth analysis of LIBOR.
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