We are repeatedly asked, what is the weak link that will bring the U.S. economy down?
There are clearly many possibilities that could answer this question, even so, there is a tendency towards corporate debt.
It is important to take into account the statistics and it is the same that indicates the history of deterioration.
Therefore, it is necessary to collect information that is useful. Thus, according to Bloomberg, the third quarter of this year experienced the largest reduction in the credit rating for US companies in relation to the updates since 2015.
Likewise, according to an analysis by Goldman Sachs, in the last 12 months, the S&P 500 non-financial cash balances have decreased by $ 185 billion, or 11%, the largest percentage decrease since at least 1980.
Despite the notorious signs of weakness, companies continue to flood the market with new supplies. In fact, S&P 500 companies have increased the debt burden by 9% so far this year, or $ 410 billion. And worldwide, “September was the busiest month for corporate debt issuance, with a record $ 434 billion in bonds sold, according to The Financial Times.
Hungry performance investors have satisfied that offer with demand. More than $ 160 billion have been disbursed in investment-grade bond funds so far this year, approximately $ 60 billion more than in all of 2018
Certainly, for more than a year, the threat of record corporate debt to global financial stability has been warned. Now, with the slowdown in global growth and the decline in the CEO’s confidence, several questions arise, including one, how vulnerable are the bond and stock markets to a simultaneous increase in defaults, rating reductions and tightening of a corporate belt?
While a crisis at the GFC level may be unlikely, today’s corporate debt has worrying parallels with the mortgage bubble of the past decade, from financial engineering with liquidity problems to the apparent collusion between debt sellers and rating agencies.
Source: 13D Research | Medium