The Zhitong Finance App learned that at a time when the global bond market is once again under pressure, J.P. Morgan CEO Jamie Dimon warned on the sidelines of an event in London this Tuesday (October 6) that global competition for capital may begin to squeeze corporate borrowers. Dimon said investors will continue to demand higher returns, and this pressure will eventually spread to corporate bonds and credit spreads.
Dimon has warned of bond market risks several times before: on April 28, he predicted a “kind of bond crisis” at the Norwegian sovereign wealth fund conference; in an interview as early as 2025, he also warned that fluctuations in the bond market would hurt financiers, including small businesses, and admits that it is impossible to determine whether the trouble will come in 6 months or 6 years. And this time, he identified the next group that might be under pressure.
Dimon's latest warning: corporate borrowers will begin to feel the squeeze
On the sidelines of the J.P. Morgan event held in London on October 6, Dimon said that global competition for capital may begin to squeeze corporate borrowers. He said that investors will continue to demand higher returns, and at some point, this pressure will spread to corporate bonds and credit spreads.
Credit spread refers to the additional portion of the interest rate on corporate loans higher than the interest rate on government loans. As interest spreads widen, the cost for companies to refinance old loans or borrow new loans will rise.
Damon's advice is to act as soon as possible. “The best way to deal with these things is to get rid of them before they turn into a crisis,” he said. He added that if it turns into a crisis, the problem will still be dealt with, but in a much more painful way.
The bond market is under pressure: US debt, junk debt, and leveraged loans are tight across the board
Dimon's comments come at a time when the global bond market is experiencing a wave of sell-offs. This round of sell-off began after the outbreak of the Iran war, which boosted inflation. The yield on the benchmark 30-year US Treasury recently climbed to its highest level since 2007. The strong performance of the US economy and the demand for capital from the AI boom have further increased the pressure.
Riskier debt is already showing pressure. According to LSEG data compiled by Yardeni Research, the cost of applying for US junk default insurance has risen sharply in the credit default swap (CDS) market.
J.P. Morgan strategists have quantified this problem with data. Leveraged loans with a transaction price of 60 cents below face value reached $65 billion, up from $40 billion a year ago, the highest since March 2020.
The broader pool of stranded loans is much larger. Loans priced at or below 80 cents totaled $139.8 billion, nearly 90% more than 12 months ago, and only $4 billion short of the peak in May 2020.
The tech industry is a weak link. The sector accounts for 39% of total stranded loans, or $54.4 billion. A total of 141 issuers traded loans for less than 80 cents, 35 more than a year ago.
The bank expects more companies to default. Its strategists expect the high-yield bond default rate to rise from 2.25% expected this year to 2.75% in 2027. The default rate for leveraged loans is also expected to reach 4.50% in 2027.
The yield of CCC-grade bonds — the lowest grade of junk bonds — has reached 15.58%, the highest since November 2022.
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Damon's explanation starts with supply and demand. In May of this year, he said that global savings had gone from excess to shortage. He warned that interest rates might be much higher than what they were at the time. At that time, the yield on 30-year US Treasury bonds had reached its highest level since 2007.
He identified three major factors: high oil prices; concerns about Japanese, British, and US government spending; and AI-driven growth. And America's increasing debt burden is further increasing this pressure. When Dimon spoke in Norway on April 28, the US federal debt was 39 trillion US dollars; data released by the US Treasury in August showed that this figure had already surpassed 40 trillion US dollars for the first time.
He also cited the 2022 UK Treasury crisis as an example: yields soared within a few days, and the Bank of England was forced to intervene. His point is that these kinds of things are developing rapidly.
Inflation poses another layer of pressure. Dimon's April 6 shareholder letter called inflation a “party skunk.” He is worried that prices will continue to rise rather than fall in 2026, and that the war in Iran is driving up energy costs.
For businesses, Dimon's test is simple. Whether leveraged or not, any business that needs to refinance or borrow should ask themselves if they are prepared to handle higher credit spreads. This applies not only to companies with tight balance sheets, but also to companies with healthy balance sheets.
So far, the damage is still relatively manageable. After the Federal Reserve raised interest rates in September, Dimon said that borrowing costs may continue to rise. But the relatively strength of the job market suggests that these costs have yet to translate into broader economic pressure.
He doesn't think this calm will last forever. It's been a long time since the last credit crisis. Dimon said in April that when the next credit crisis hits, “it will be worse than people think.”
Given the current level of risk exposure, this warning is even more weighty. The private credit market alone is around $1.7 trillion, and this figure continues to grow.