Leveraged lending is again on the rise; spreads on leveraged loans and the securitized products backed by those loans are low, and the Board’s Senior Loan Officer Opinion Survey on Bank Lending Practices suggests that underwriting standards for leveraged loans may be declining to levels not seen since 2005.
While tightening resource utilization and loose financial conditions present upside risks, recent foreign developments present downside risks. Trade policy has introduced uncertainty. Growth in Europe and Japan has moderated from its strong pace of last year, and political risks have reemerged in countries such as Italy. China is contending with deleveraging and deceleration as well as a challenging trade environment.