Cracks emerge in corporate debt
The total value of non-financial corporate debt in the US is now almost $10trn, equivalent to half of America’s GDP.
American corporate debt is close to all-time highs, says Daniel Bergstresser on PBS. The total value of non-financial company debt is now almost $10trn, equivalent to half of America's GDP. The debt problem has been aggravated by corporations borrowing in order to boost shareholder returns, typically through share buybacks, says The Economist. If management declines to "optimise" its balance sheet with extra debt then "a band of capital-rich buyout firms stand ready to do the job". Now the median credit rating for US company paper is BBB, one grade above "junk".
As long as corporate profits remained strong nobody thought that the debt was anything to worry about, writes Justin Lahart in The Wall Street Journal. Yet recent revisions to profit figures have made the "debt-to-income" tabulations look a whole lot worse. The upshot is that corporate America is vulnerable. "If demand shows signs of faltering, companies could be quicker to ratchet down spending and hiring than they would be if they weren't so indebted." That will hamstring the economy's ability to bounce back from shocks.
Recent figures show that the number of US loans trading below 90 cents on the dollar which implies a heightened risk of default rose to 10% in August, reports Joe Rennison in the Financial Times. "Cracks are emerging in the loan market that could soon become big holes."
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Review: The Bath Priory – a charming stay in an elegant city
MoneyWeek Travel Matthew Partridge visits the Roman ruins and takes the waters at The Bath Priory hotel’s luxurious spa
By Dr Matthew Partridge Published
-
Will Labour change the rules on pension tax relief?
Speculation is mounting that tax hikes could be announced in Rachel Reeves’s first Budget. Will pension tax relief rules be reformed?
By Katie Williams Published