U.S. corporate debt has swelled to nearly $10 trillion, a record 47 percent overall of the world’s largest economy, according to recent data cited by the Washington Post.
The borrowing binge that has ballooned investment-grade debt in recent years now poses a new risk.
The cheap borrowing cost post the 2008 financial crisis could worsen a future economic downturn, according to experts from the International Monetary Fund (IMF) and trillion-dollar asset manager BlackRock.
Some of America’s best-known companies such as AT&T, General Motors and CVS Health have splurged on borrowed cash.
In an October report, the IMF said loose monetary policy by central banks around the world over the last decade could have made some systematically-important economies more vulnerable to an economic slowdown.
“Corporate leverage can also amplify shocks, as corporate deleveraging could lead to depressed investment and higher unemployment, and corporate default could trigger losses and curb lending by banks,” the IMF wrote.
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BlackRock also said in a report that BBB-rated bonds, the lowest bracket of the investment-grade debt, now accounted for more than half of the market compared to just 17 percent in 2001.
This basically means the creditworthiness of bond issuers has fallen and leverage levels are creeping towards the highest readings since 1992.
