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Illustration: Aïda Amer/Axios

The Fed might not be raising rates, but it is again warning about Corporate America's reliance on leveraged loans.

Why it matters: An economic slowdown could create a sharp spike in defaults, affecting not just individual companies but also mutual funds that hold bank debt or leveraged loans themselves.

Per the central bank's latest Financial Stability Report:

  • Leveraged loans now stand at $1.15 trillion.
  • That's represents a 20.1% increase during 2018, compared to an average growth rate of 15.8% between 1997 and 2018.
  • The current total is larger than prior peaks in 2007 and 2014.

The big picture: It's not just the aggregate numbers that worry central bankers. It's also the continued weakening of leveraged lending standards and covenants. For example, the share of large loans with debt-to-EBITDA ratios above 6x is now higher than during prior peaks in 2007 and 2014. Moreover, a Moody's index tracking the strength of leveraged loan covenants is at its lowest level since the index launched in 2012 — including a substantial rise in cov-lite loans.

  • The Fed acknowledges that leveraged loan credit performance has remained "solid" with low default rates,"in part reflecting the relatively strong economy." It also believes today's leveraged loan bundles are better structured than pre-crisis residential mortgage bundles.

The bottom line: That's a major contrast from 2008, in that the Fed in 2019 suggests these loans could create a severe bubble deflation rather than an all-out pop. But perhaps the biggest difference is that the Fed and others are actually sounding preemptive alarms. If things get messy this time, no one will be able to pretend they weren't warned.

Go deeper: The debt market is littered with risky loans

Go deeper

Republican Sen. Sasse slams Nebraska GOP for "weird worship" of Trump after state party rebuke

Sen. Ben Sasse, (R-Neb.) Photo: Andrew Harnik - Pool/Getty Images

The Nebraska Republican Party on Saturday formally "rebuked" Sen. Ben Sasse (R-Neb.) for his vote to impeach former President Trump earlier this year, though it stopped short of a formal censure, CNN reports.

Why it matters: Sasse is the latest among a slate of Republicans who have faced some sort of punishment from their state party apparatus after voting to impeach the former president. The senator responded statement Saturday, per the Omaha World-Herald, saying "most Nebraskans don't think politics should be about the weird worship of one dude."

Cuomo barraged by fellow Dems after second harassment accusation

New York Gov. Andrew Cuomo faced a barrage of criticism from fellow Democrats after The New York Times reported that the second former aide in four days had accused him of sexual harassment.

Why it matters: Cuomo had faced a revolt from legislators for his handling of nursing-home deaths from COVID. Now, the scandal is acutely personal, with obviously grave political risk.

2 hours ago - Health

Fauci: Children "very likely" to get COVID vaccine at start of 2022

NIAID Director Anthony Fauci. Photo: Win McNamee/Getty Images)

Children under age 12 will "very likely" be able to get vaccinated for coronavirus at the "earliest the end of the year, and very likely the first quarter of 2022," NIAID Director Anthony Fauci told "Meet the Press" Sunday.

Why it matters: Children generally aren't at risk of serious coronavirus infections, but vaccinating them will be key to protecting the adults around them and, eventually, reaching herd immunity, writes Axios' Caitlin Owens.