Companies are on pace to sell a record volume of U.S. investment-grade bonds this year, with 65% of the issuance coming from BBB rated issuers: Fitch Ratings fitchratings.com/site/re/10099564
Here’s a look at the market value of the Baa universe of debt in the U.S. – rising to nearly $3 trillion, triple where it was in 2010, as per Bloomberg Barclays index data:
BBB rated bonds are essentially junk bonds in disguise. When the next crisis hits, most of these companies will likely be downgraded into junk status and will experience increases in the interest rates they pay on their debt. In addition there are some heavyweight institutional investors that are prohibited from investing in junk debt (i.e pension funds) so the reduced demand will cause a devaluation of their companies and contribute to them having to pay more for debt. These factors will likely cause many of them to go under considering tons of companies are basically loaded up on debt to begin with, and they wouldn’t be able to service debt that costs them more.
It’s a classic positive feedback loop.