FROM EIR DAILY ALERT

OECD Report Warns of Corporate Debt Ticking Bomb‘

Feb. 26, 2019 (EIRNS)—In a new paper entitled “Corporate Bond Markets in a Time of Unconventional Monetary Policy,” the OECD warns about the giant dimensions of the global corporate debt issued by non-financial companies, which has reached almost $13 trillion at the end of 2018. “This is double the amount outstanding in real terms before the 2008 financial crisis.” But the most alarming news is that 54% of that debt is one step from junk!‘

“The share of lowest quality investment grade bonds stands at 54%, a historical high,” says the report, and complains that bail-in procedures have worsened the situation: “There has been a marked decrease in bondholder rights that could amplify negative effects in the event of market stress.”‘

The report estimates that

“in the case of a financial shock similar to 2008, $500 billion worth of corporate bonds would migrate to the non-investment grade market within a year, forcing sales that are hard to absorb by non-investment grade investors.”‘

Other factors to be put into the equation are: a downturn in global economic growth, causing corporate debt insolvencies; central banks end of expansive monetary policies; about $4 trillion worth of corporate bonds, “close to the total balance sheet of the U.S. Federal Reserve,” to be refinanced or paid back in the next three years.‘