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One of the investors who profited most from the housing collapse a decade ago is seeing danger in the corporate bond market.
Steve Eisman, immortalized in the Michael Lewis book "The Big Short," is the latest to issue a warning about company debt at the lowest rung of the investment-grade ladder. That BBB-rated debt totals more than $2 trillion, according to recent figures from Bank of America Merrill Lynch, but it's not the sheer volume that worries Eisman.
Instead, he is concerned that banks have reduced their roles in riskier areas of the bond market, making things more complicated should there be a rush to the exits from investors holding that kind of paper.
""Liquidity across the market has been diminishing," Eisman told the Financial Times.
Such bonds had been performing well compared with the rest of fixed income in the years since the financial crisis, but slumped in 2008.
Banks have been forced to cut risk in the days since the financial crisis from which Eisman profited. That means they can't hold as much low-rated debt on their books and thus are restrained from their traditional role as market makers.
Concerns also have been rising about some big players in the BBB market falling down the ladder into junk territory if credit conditions worsen.
Eisman said he doesn't see a recession coming, which would be perilous for companies with high debt at the lower end of the credit spectrum. Former Federal Reserve Chairman Janet Yellen warned last month that high levels of corporate debt are posing potential dangers including "lots of bankruptcies in the non-financial corporate sector."
Eisman, now a portfolio manager at Neuberger Berman, made his name during the subprime meltdown when he bet against instruments that bundled mortgages that eventually defaulted.
Read the full Financial Times report here.