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Sunday, 8 December 2019

Growing level of corporate debt at lower end of ‘safe’ threatens deeper recessions

Growing level of low-ranking investment-grade corporate debt threatens deeper recessions: Nearly half of US investment-grade corporate debt is currently rated ‘BBB,’ which has investors worried that many companies could see their debt enter ‘junk’ territory when the next recession hits, says the Wall Street Journal (watch, runtime: 5:37). Companies rated BBB are currently leveraged close to 3.5x their annual earnings, and with around USD 3.7 tn in BBB-rated corporate debt, a large chunk of the corporate bond market could plunge in value in the event of a recession. Some analysts are skeptical that some of these BBB-rated companies should even be given an investment-grade rating given their high debt-to-earnings ratios, making holding their bonds that much riskier.

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