Corporate bond market gives more reassurance than in 2008
The V-shaped recovery is starkest in the stock market, where the Nasdaq has overtaken its pre-virus highs and where the S&P 500 is back to its frothy levels of last November.
The big picture: The health of the stock market provides reassurance that our current crisis will pass without the major loss of wealth that we saw in 2008-09.
Why it matters: There is still a lot of fear that a "tidal wave of bankruptcies" is about to swamp the economy, sending it back into another downward spiral. But for all that U.S. corporations are operating with unprecedented amounts of debt, the financial markets remain sanguine.
By the numbers: While high-profile "mega-bankruptcies" such as Hertz and J. Crew make headlines, the total number of bankruptcies involving more than $100 million in debt is likely to be substantially lower this year than we saw during the last recession. That's according to NYU business school professor Edward Altman, who sees 192 such filings in 2020, compared with 242 in 2009.
- Flashback: One of the great surprises of 2009 was how few companies ended up filing for bankruptcy. The same might well end up being true in 2020.
- Insolvent companies do not always file for bankruptcy protection. Often, their creditors allow them to roll over their debts, betting that they'll make a better recovery that way compared with their likely outcome in bankruptcy court.
Corporate credit spreads — the market's gauge of the riskiness of corporate debt — are elevated right now, but nowhere near their levels during the last recession. They're even lower than the spike we saw in 2016.
The bottom line: The good news in the current crisis is that it isn't a credit crunch. If you're holding corporate debt, you can be at least a little bit reassured that a lot of equity needs to be wiped out before you lose a penny.