The hike in interest rates triggered by faster growth from U.S. tax cuts may cause the bubble in credit to pop, billionaire hedge fund manager Paul Tudor Jones said.
“We’re going to stress test our whole corporate credit market for the first time,” Jones said Thursday at the Greenwich Economic Forum in Greenwich, Connecticut. “From a markets perspective, it’s going to be interesting. There probably will be some really scary moments in corporate credit.”
Jones, who heads the $7 billion Tudor Investment Corp., said zero and negative interest rates have encouraged excess lending, putting the markets in a perilous condition. He said today’s levels of leverage could be systemically threatening even if policy makers respond appropriately.
Concerns about earnings peaking, trade wars, oil prices and rising rates have been knocking credit markets, with global high yield bonds suffering their worst October since 2008 and continuing to sell off this month. Investment grade U.S. corporate debt is posting its worst year-to-date performance in a decade, falling about 4 percent through Nov. 15, according to the Bloomberg Barclays index.
“The end of the 10-year run is going to be a really challenging time for policy makers going forward,” he said.
Stocks, bonds, currencies and real estate are all overvalued, he said.