Deutsche Bank has highlighted a dangerous divergence between risk assessments in the equity market and the US credit market. Analysts observe that the stock market currently shows optimism, while the credit market signals increasing risks associated with a deteriorating economic situation.
This is reported by Business • Media
Main Drivers of the Imbalance Between Markets
The bank’s report emphasizes that rising margin debt, high borrowing costs, persistent inflation, and geopolitical uncertainty have led to a gap between the dynamics of the equity and credit markets. While the bond market warns of potential difficulties in the corporate sector, stocks, particularly those of technology giants, remain at high price levels.
Deutsche Bank forecasts that over the next 12 months, credit spreads in the US high-yield bond market could widen by 80-120 basis points, and the default rate may rise to 4.8% by mid-2026. At the same time, confidence in sustained corporate profit growth in the equity market remains. However, among additional risks, experts point to an increase in delinquencies on consumer loans, including credit cards, student loans, and auto loans.
Companies with high debt loads, issuers with speculative ratings, and those dependent on the high-yield bond market remain particularly vulnerable. Rising capital costs may force companies to cut investments and complicate the refinancing process. Meanwhile, businesses with significant liquidity, stable cash flows, and minimal reliance on external financing will have an advantage.
Possible Scenarios and Key Indicators
Deutsche Bank warns that such divergence could lead to unpredictable corrections in the markets, misallocation of capital, and even increased losses in financial institutions and funds. This could result in reduced credit activity and create additional pressure on corporate balances. Experts note that regulators are already closely monitoring the situation, and if escalation occurs, additional measures may be implemented to support liquidity, tighten credit requirements, and control risks.
Historical examples—from the dot-com bubble to the 2008 financial crisis—clearly demonstrate the consequences of underestimating market risks. Analysts expect the coming months to be characterized by high volatility, especially for overvalued stocks and companies with significant debt obligations.
“This divergence poses a serious threat to financial stability,” the report states.
Deutsche Bank identifies three main scenarios for future developments: a gradual alignment of valuations and a soft correction, a sharp decline in the event of increased credit pressure, or a prolonged period of instability without a defined trend. Among the key indicators to watch, experts mention: interest rate dynamics and signals from the Federal Reserve, default and delinquency rates, companies’ ability to refinance debts, demand for high-yield bonds, and the impact of geopolitical events on inflation.
In conclusion, the bank emphasizes that the fundamental resilience of companies and the quality of their financial balances will determine market stability in the near future.