May 21, 2020 - Economy & Business

Corporate debt issuance has already topped $1 trillion in 2020

Illustration: Eniola Odetunde/Axios

Barely five months into the year, U.S. investment-grade companies already have issued more than $1 trillion in debt — nearly as much as in all of 2019, which was well above average.

Why it matters: And buying shows no sign of letting up, thanks in large part to ultra-low interest rates and the Fed's promise of "no limit" purchases of Treasury, investment-grade corporate and even junk bonds.

What's happening: "Nearly $200 billion in debt has been issued in May so far as companies capitalize on growing risk-on attitudes," Bank of America research analysts said in a recent note to clients.

  • After $273 billion of outflows from bond funds in March, money has raced back into fixed income with positive inflows every week since mid-April, data from the Investment Company Institute show.

What to watch: Despite warnings of widespread downgrades, defaults and bankruptcies from various ratings agencies, credit analysts and the Fed itself, bond spreads are narrowing, indicating bullishness from investors as more of the U.S. economy opens for business.

  • "There's been a flood of issuance ... and the question is how much more can these spreads narrow," Subadra Rajappa, head of U.S. rates strategy at Société Générale, tells Axios. "My concern is that it seems like all this narrowing is a bit overdone."

Driving the news: Minutes from the Fed's latest policy meeting released Wednesday showed the central bank contemplating a program to cap the yields on short- and medium-term Treasuries known as yield-curve control — a policy employed by the Bank of Japan and Reserve Bank of Australia.

  • That would ensure borrowing costs stay low and likely encourage even more debt issuance from companies.

What could go wrong: Already warning that the economic damage from the pandemic will be deep and long-lasting, the Fed's latest financial stability report highlights the risk added by the growing corporate debt binge to exacerbate the coronavirus-driven recession.

Of note: Highly indebted "zombie" companies — firms that don't earn enough revenue to pay the interest on their debt — are one out of every six U.S. companies and currently control nearly 2.2 million jobs.

Flashback: "High levels of corporate debt likely won’t cause an economic downturn, but they may accelerate one as highly leveraged companies fail, forcing layoffs, decreasing aggregate demand and creating a downward spiral of bankruptcies and further layoffs," the U.S. Joint Economic Committee wrote in October 2019.

  • The committee cited Fed chair Jerome Powell himself, noting, “[a]highly leveraged business sector could amplify any economic downturn as companies are forced to lay off workers and cut back on investments.”

Go deeper: No, insurance doesn't cover that

Go deeper

World coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Axios Visuals

The European Union is considering an $826 billion coronavirus rescue package to fund recovery efforts for all member states, European Commission President Ursula von der Leyen said Wednesday.

By the numbers: More than 5.6 million people have tested positive for COVID-19 and over 2.3 million have recovered from the virus. Over 355,500 people have died globally. The U.S. has reported the most cases in the world (over 1.6 million from 15.1 million tests).

U.S. coronavirus updates

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios. This graphic includes "probable deaths" that New York City began reporting on April 14.

More than 100,000 Americans have died of the coronavirus, according to data from Johns Hopkins — a milestone that puts the death toll far beyond some of the most tragic events in U.S. history.

By the numbers: Over 1.6 million have tested positive in the U.S. Nearly 354,000 Americans have recovered and over 15.1 million tests have been conducted. California became the fourth state with at least 100,000 reported cases of the coronavirus on Wednesday, along with Illinois, New Jersey and New York.

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 8 p.m. ET: 5,682,389 — Total deaths: 354,944 — Total recoveries — 2,337,385Map.
  2. U.S.: Total confirmed cases as of 8 p.m. ET: 1,697,459 — Total deaths: 100,276 — Total recoveries: 391,508 — Total tested: 15,192,481Map.
  3. Public health: Fauci says data is "really quite evident" against hydroxychloroquine — Nearly half of Americans say someone in their household has delayed medical care.
  4. States: California hospitals strained by patients in MexicoTexas Supreme Court blocks mail-in expansion to state voters.
  5. Business: MGM plans to reopen major Las Vegas resorts in June — African American business owners have seen less relief from PPP, Goldman Sachs says.
  6. Tech: AI will help in the pandemic — but it might not be in time for this one.
  7. 1 🎶 thing: Local music venues get rocked by coronavirus.
  8. 🎧 Podcast: Trump vs. Twitter ... vs. Trump.
  9. What should I do? When you can be around others after contracting the coronavirus — Traveling, asthma, dishes, disinfectants and being contagiousMasks, lending books and self-isolatingExercise, laundry, what counts as soap — Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingHow to minimize your risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it, the right mask to wear.

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Updated 2 hours ago - Politics & Policy