Chart of the week: America’s corporate debt binge

US households have spent much of the past decade deleveraging. Companies haven’t as this chart shows.

961_COTW-634

US households have spent much of the past decade deleveraging, notes John Mauldin in his Thoughts From The Frontline newsletter. Companies haven't. They have grown debt much faster than earnings, not least because many have borrowed to fund stock buybacks rather than invest in their operations.

The upshot is that firms are 50% more leveraged now compared to their profits than in 2007. The quality of investment-grade paper has also deteriorated: the lowest tier, BBB-rated debt, now comprises 50% of all issuers. "All these are just one downgrade away from being junk bonds'." Many funds are not allowed to hold junk, so their forced selling will exacerbate the downturn when the next recession hits.

Recommended

Bonds
Glossary

Bonds

A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020
Why the classic 60/40 investment portfolio may no longer work
Investment strategy

Why the classic 60/40 investment portfolio may no longer work

The dramatic events in the bond market have thrown into question the classic investment strategy of the last 40 years. An investment portfolio made up…
1 Mar 2021
Will higher bond yields sink equities?
Government bonds

Will higher bond yields sink equities?

Bond yields have been ticking back up since the autumn, with the benchmark US ten-year bond now above 1.2%. That could tempt investors away from share…
19 Feb 2021
The charts that matter: GameStop, silver, vaccines, and swapping gold for bitcoin
Economy

The charts that matter: GameStop, silver, vaccines, and swapping gold for bitcoin

After a week with plenty to talk about, John Stepek looks at how the events of the last seven days have affected the charts that matter most to the gl…
6 Feb 2021

Most Popular

A beginner’s guide to bitcoin: what is bitcoin?
Bitcoin

A beginner’s guide to bitcoin: what is bitcoin?

As a completely novel concept for many people, bitcoin can take a little effort to get to grips with. In the first of a short series on the cryptocurr…
1 Mar 2021
A beginner’s guide to bitcoin: how to buy bitcoin
Bitcoin

A beginner’s guide to bitcoin: how to buy bitcoin

For the novice, buying bitcoin can be a daunting prospect. Here, Dominic Frisby outlines the process from start to finish.
2 Mar 2021
What is “yield curve control” and why is it coming to a central bank near you?
Government bonds

What is “yield curve control” and why is it coming to a central bank near you?

Central banks around the world are determined not to let interest rates go up too quickly or by too much – a practice known as “yield curve control”. …
1 Mar 2021