Bank stress likely to lead to tighter lending, corporate defaults – BofA credit survey

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The gap between high-yield bonds and government debt has tightened on 63% of days so far in 2023, an all-time record, signalling that credit markets are faring well in face of recent market turmoil, BofA said.

The biggest share of respondents to its latest survey, some 36%, said they expected bank stress to remain confined to small banks with challenged business models, with the United States more vulnerable than Europe given different regulatory supervisions.

However, over 20% said they believed that a credit crunch resulting from the bank stress would lead to a noticeable pick-up in corporate defaults.

UK business insolvencies surged to almost 2,500 in March, the survey noted.

As banks may withdraw from lending to high-risk assets, credit investors did not believe that private credit markets would step in and replace it.