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 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 policymakers respond appropriately.
“The end of the 10-year run is going to be a really challenging time for policymakers going forward,” he said.
The hedge fund manager said the next trade will be a “front-end rates trade” of figuring out when policymakers will cease interest rate hikes. Even though growth may slow through next year, stocks may not take an immediate hit.
“It doesn’t necessarily mean we have to enter a bear market yet,” he said.
This article was provided by Bloomberg News.