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While the BIS is careful to talk in broad terms, it is known that Chinese developers have borrowed heavily in U.S. dollars through the FX swaps market. They do so because rates are lower and to dodge credit curbs. If funding suddenly dries up, Chinese regulators may be reluctant to bail them out for political reasons until the situation is very serious.

“A defining question for the global economy is how vulnerable balance sheets may be to higher interest rates,” said Borio, the high priest of the global banking fraternity.

Signs of excess are visible everywhere. “Corporate debt is now considerably higher than it was pre-crisis. Leverage indicators have reached levels reminiscent of those that prevailed during previous corporate credit booms. A growing share of firms face interest expenses exceeding earnings before interest and taxes,” said the report.

The BIS warned that margin debt used on equity markets exceeds the dotcom extreme in 2000. So-called ‘leveraged loans’ have surged to a record US$1 trillion, and the share with risky ‘covenant-lite’ terms have jumped to 75 per cent. Everything looks fine so long as low bond yields underpin the asset edifice, but they may not stay low. “Equity markets continue to be vulnerable to the risk of a snapback in bond markets,” it said.

The structure is deeply unhealthy. Central bankers dare not lift rates despite economic recovery because of what they might detonate. “There is a certain circularity that points to the risk of a debt trap,” said Borio.