Credit Excess

US companies are gorging on debt. Never before has so much debt been issued by the corporate sector on such a consistent basis. Since 2011, US companies have accelerated their issuance of corporate bonds to over $1.3 trillion per annum. Record low bond yields have distorted the playing field. If US companies are raising capital for productive purposes, then issuing debt at record low yields makes a great deal of sense. However, if capital is being raised for less productive purposes, like buying back shares for example, in an effort to manipulate stock prices higher, then leveraging company balance sheets makes much less strategic sense. Stock prices may rise in the short-term but highly geared companies become much more vulnerable when the downturn inevitably comes.

 
 Source: Investech Research

Source: Investech Research

 

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