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Top US regulator issues warning over corporate debt, market risks

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WASHINGTON The head of the top US markets regulator on Monday issued a warning over market risks including rising corporate debt, Britain's withdrawal from the European Union, and the transition away from a key lending rate.

Mr Jay Clayton, chairman of the Securities and Exchange Commission (SEC), told an audience in New York he continued to be concerned over corporate debt growth, which he said had been fostered by a decade of accommodative monetary policies.

In the US, outstanding corporate debt stands at almost US$10 trillion (S$13.8 trillion), almost 50 per cent of GDP, he said.

"Those are numbers that should attract our attention," said Mr Clayton.

The US corporate bond market, the world's largest, has offered robust returns, particularly for foreign investors, although Mr Clayton added that there are signs those returns may be slowing.

"We should recognise what prices and price movement in the corporate debt market are telling us.

"For example, on a total return basis, the upside has become more limited while the downside has not improved."

He added that the SEC, alongside other regulators, should monitor flows into and out of credit funds, and portfolio characteristics including concentration, liquidity and leverage.

Mr Clayton also said US banks should assess their exposure to the London interbank offering rate, known as Libor, ahead of a 2021 deadline to transition away from the lending benchmark rate.

He said the industry had to decide how to actively manage that risk.- REUTERS