III.3  Euro area corporate and household sectors  Turning to developments in the euro area corporate sector, over the past six months there have been mounting signs that an adverse turn in the credit cycle seems increasingly likely, driven by factors such as rising leverage ratios, a further tightening of monetary conditions and expectations of a future slowdown in the pace of profit growth.
A favourable economic environment together with the persistently low cost of issuing corporate sector debt and greater investor appetite for lower quality credit have created conditions that have been conducive to a surge in global merger and acquisition (M&A) activity [see chart on the left of slide 8], and in particular of leveraged buy-outs (LBOs).