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Analysis on Global Corporate Debt Markets

After the great recession in 2008, a shift in lending strategies among corporations has occurred, especially in regards to bond financing, as commercial bank lending has been minimized. Recent research suggests that of all corporate debt, nineteen percent is in the form of bonds – that’s almost twice the percentage investors saw in 2007. With a look at annual numbers, nonfinancial corporate bond issuance has risen 2.5 times since 2007 to $2 trillion. When evaluating the value of those bonds compared to 2007, investors will see an increase of 2.7 x to $11.7 trillion; that’s double when viewed as a share of GDP. Especially speculative-grade bonds have strengthened, with the value of corporate high-yield bonds outstanding rising to $1.9 trillion in 2017, more than tripling the $500 billion analyzed in 2007. These bonds are mostly come due in the next five years.

Yet with the rising bond markets, risks have also been on the rise. Some investors might view the expansion and deepening of global corporate bond markets as a positive sign, but creditworthiness of borrowers is being questioned. Analysis reveals that 40% of nonfinancial corporate bonds are now rated BBB. During bull markets this is a smaller concern, but if headwinds shift, investors might see more defaults in the years as this increased amount of bonds come due and borrowing costs rise.

Keith Knutsson of Integrale Advisors commented, “Investors should not be deceived by current favorable conditions and look into the risks of bonds markets going forward - tying the information derived from the present bond markets into current political climates and tariff discussions would be well advised.”

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