Mounting Corporate Debt, Effects of New QE Measures, and a Currency Check In
March 30, 2020 | FIRESIDE CHARTS
U.S. businesses are scrambling for liquidity in an increasingly arid market. Corporate loan balances have surged by the highest percentage on record and investment-grade bond issuance has also spiked—but could so much additional debt send us careening toward another credit crisis? And with so much volatility in the bond market recently, is there a large enough market for all this debt among wary investors? The Fed’s massive intervention into the market may help, as their recent buying spree has calmed some of the swings and helped inch yields closer to normal territory. All for the low, low price of $1 trillion per week! And while this additional liquidity looks to be putting some downward pressure on the U.S. dollar, March’s small drop is nothing compared to the massive swings we’ve seen in EM currencies. Will the trend continue as the coronavirus continues to reshape our lives and economies?
1. Last month U.S. corporate debt surged 8% higher, a record, as corporations tapped their lines of credit.
Source: WSJ Daily Shot, from 3/30/20
2. Will all this new debt create another systemic credit crisis, this time driven by corporate debt?
Source: WSJ Daily Shot, from 3/30/20
3. Given the aggregate appetite for bonds of late, we wonder who will buy all this debt?
Source: WSJ Daily Shot, from 3/30/20
4. The Fed’s bond buying across the curve, as well as in short-term “hotpots,” has brought bond volatility back into a “normal” range…
Source: WSJ Daily Shot, from 3/30/20
5. The Fed’s intervention into the MBS bond market has also brought yields back “under control”…
Source: WSJ Daily Shot, from 3/30/20
6. The Fed has already added $1.2 trillion to it’s balance sheet as they bought ~$1 trillion of bonds last week alone…
Source: The Chart Store, as of 3/25/20
7. Most commodities have also been crushed…
Source: The Chart Store, from 3/29/20
8. Even the venerable USD experienced volatility in March.
Source: The Chart Store, from 3/29/20
9. Yet the volatility in most emerging market currency has been extreme…
Source: The Chart Store, from 3/29/20
Disclosure: The charts and info-graphics contained in this blog are typically based on data obtained from 3rd parties and are believed to be accurate. The commentary included is the opinion of the author and subject to change at any time. Any reference to specific securities or investments are for illustrative purposes only and are not intended as investment advice nor are they a recommendation to take any action. Individual securities mentioned may be helf in client accounts.