Corporate Debt Bubble
A Corporate Debt Bubble is a financial bubble of corporate debt (excluding financial institution debt).
References
2021
- (Wikipedia, 2021) ⇒ https://en.wikipedia.org/wiki/Corporate_debt_bubble Retrieved:2021-2-18.
- The corporate debt bubble is the large increase in corporate bonds, excluding that of financial institutions, following the financial crisis of 2007–08. Global corporate debt rose from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies — the United States, China, Japan, the United Kingdom, France, Spain, Italy, and Germany—total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. Excluding debt held by financial institutions — which trade debt as mortgages, student loans, and other instruments — the debt owed by non-financial companies in early March 2020 was $13 trillion worldwide, of which about 9.6 trillion was in the U.S.
The corporate bond market historically centered in the United States. The U.S. Federal Reserve noted in November 2019 that leveraged loans, corporate bonds made to companies with poor credit histories or large amounts of existing debt, were the fastest growing asset class, increasing in size by 14.6% in 2018 alone. Total U.S. corporate debt in November 2019 reached a record 47% of the entire U.S. economy. However, corporate borrowing expanded worldwide under the low interest rates of the Great Recession. Two-thirds of global growth in corporate debt occurred in developing countries, in particular China. The value of outstanding Chinese non-financial corporate bonds increased from $69 billion in 2007 to $2 trillion in 2017. In December 2019, Moody's Analytics described Chinese corporate debt as the "biggest threat" to the global economy.
Regulators and investors have raised concern that large amounts of risky corporate debt have created a critical vulnerability for financial markets, in particular mutual funds, during the next recession. Former Fed Chair Janet Yellen has warned that the large amount of corporate debt could "prolong" the next recession and cause corporate bankruptcies. The Institute of International Finance forecast that, in an economic downturn half as severe as the 2008 crisis, 19 trillion in debt would be owed by non-financial firms without the earnings to cover the interest payments, referred to as zombie firms. The McKinsey Global Institute warned in 2018 that the greatest risks would be to emerging markets such as China, India, and Brazil, where 25-30% of bonds had been issued by high-risk companies.
- The corporate debt bubble is the large increase in corporate bonds, excluding that of financial institutions, following the financial crisis of 2007–08. Global corporate debt rose from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies — the United States, China, Japan, the United Kingdom, France, Spain, Italy, and Germany—total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. Excluding debt held by financial institutions — which trade debt as mortgages, student loans, and other instruments — the debt owed by non-financial companies in early March 2020 was $13 trillion worldwide, of which about 9.6 trillion was in the U.S.