Advertisement

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.

Advertisement
Advertisement

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
How investors got burned by Chilango's burrito bonds
Corporate bonds

How investors got burned by Chilango's burrito bonds

As investors in restaurant chain Chilango's burrito bonds face losing all their money, MoneyWeek’s warning to steer clear of mini-bonds proved prescie…
3 Aug 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020
The charts that matter: Tesla triumphs
Global Economy

The charts that matter: Tesla triumphs

As Tesla becomes the world's most valuable car-maker by market capitalisation, John Stepek looks at how that affects the charts that matter most to th…
4 Jul 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020