USA Leverage & Higher Interest Rates: a bad mix

One of my biggest concern at the moment is that the Global Corporate Leverage Rate is higher than during the 2007-2008 Financial Crisis. 

I think the chart below, provided by the Bank of International Settlements, is really concerning.

The gray line represents the level of total debt as a percentage of GDP. During the financial crisis of 2007-2008 the Global Corporate Debt/GDP ratio was at 85% while during the year 2017 it increased to 96%. 

One of the drawbacks of Quantitative Easing  has been that it compressed interest rates at such a low level that for companies it was just too attractive to add debt to their balance sheets. Now that Interest Rates are going up, servicing all this debt will be a daunting challenge. 

During the next months we will have to monitor closely the Credit Spread for both Investment Grade and High Yield in the USA which are still at historically low levels. If, for any reasons, these Credit Spreads will widen aggressively during the next months, we will have to assess the impact on the economy.

Relating to Consumers, the situation is not any better. In the USA the Consumer relies heavily on Debt, like Credit Card Debt. This kind of debt is correlated with Short Term Interest Rates which during the last months have increased considerably. Please take a look at the chart below provided by Bloomberg

If the Federal Reserve will be successful in raising the Fed Funds to 2.25%-2.5% within year end, I expect the 2Y interest rate to hover around 3%. This may force the consumers to cut down on spending. This may be a drag for the Economy going into 2019, in not earlier.