According to a new Bofo Global Research report, US corporations now pay a record $ 10.5 trillion to creditors, either in the form of bonds or loans, a 30-fold increase over a half-century.
By far, the biggest hoax of debt by US companies has been extracted from AAA with BBB’s high “investment-grade” credit rating, a segment of the market where lending has more than doubled in the past decade to nearly $ 7.2 trillion.
However, half or $ 3.6 trillion of investment-grade corporate debt remains within the bordering BBB credit-rating category, only a few notches from speculative-grade or “junk” sector.
There has been a long-standing concern among investors that an economic downturn or a continuous cycle of BBB downgrades by credit-rating firms could lead to a decline in the junk-bond market, which is about 250% smaller than the BofA BBB segment .
Certainly, the outlook for corporate debt has brightened since March, when it sold for the first time buying corporate debt, including the central bank’s historic leap to keep debt flow during the epidemic of the Federal Reserve’s emergency funding programs Was.
The impact of demonetisation has led to a flood of capital in the US corporate debt sector, including individual investors in bond funds and exchange-traded funds and foreign buyers looking for yields, which have kept the debt market liquid.
This chart breaks ownership of the US corporate bond market as of the first quarter of 2020.
Of note, the pie chart so far includes owners of a flood of new debt issued by US companies at ultra-low lending costs during the second quarter, as the epidemic bored over North America and left companies offset Cash is to be hoarded. There are many quarters of weak corporate income.
Read: A binge? Bulge? Or just a new normal for debt in the US helps the string of records as the Fed
However, it showed that earlier this year, foreign investors were the largest holders of the pie, owning 27% of US corporate debt. He was followed by funds including mutual and exchange-traded funds with 22% shares.
Another major aspect of the decade-long corporate debt boom is the growing role of exchange-traded funds (ETFs), or funds that advertise daily liquidity in the market, even though their underpinning assets may be notorious.
However, for the most part, the largest US corporate bond ETFs performed as expected during the worst of the coronovirus-triggered downward spiral and subsequent recovery, the fastest on record for major US stock indexes.
Capping five strong months of gains, the S&P 500 Index SPX,
And the Dow Jones Industrial Average DJIA,
Booking their best August returns in 36 years closed on Monday.
BofA’s credit team, led by Hans Mikkelsen, has become increasingly popular this year with fixed-income ETFs, including shares dedicated to high-class corporate bonds, to 12.4% trading volumes relative to bonds already in place this year. are grown. From 1.6% in 2010.
Specifically, in investment-grade corporate bonds, his team accounted for nearly half of the daily ETF trading volume in the iShares iBoxx UDS Investment Grade Corporate Bond ETF LQD worth $ 57.4 billion,
Hardly, in the last three months, the Fed was the largest holder of the LQD of 17,861 shares, according to FactSet data.