Credit market bubble building? A forming credit bubble could burst by 2017

Bubble theories and concerns are becoming quite common these days for several asset classes, prompting discussions and warnings, including those from regulators. We now come to some key questions—are we in the midst of an inflating credit bubble and, if so, when is it likely that the bubble will burst? Contrarily, are we experiencing an extended period of opportunistic debt financing—a theory made popular amongst corporate finance theorists going back to at least the 1960s and 1970s. The evidence we have compiled leads us to conclude that, indeed, a bubble is building, but it is not likely to explode dramatically, with a significant increase in corporate bond and loan defaults, until at least late 2016 or more likely in 2017–2018. Fear, however, of a potential crisis in credit and equity markets, or major dislocations in important industries or countries, may contribute to periods of negative price movements and increased volatility in these, and other, asset classes before the bubble actually bursts.