Since the 2008 global financial crisis, American corporations have taken advantage of historically low interest rates to gorge themselves on debt. Then came the pandemic and the sharpest economic downturn in history, which resulted in an odd solution for the companies that did all that borrowing: more debt.
Through late June, giant U.S. companies had borrowed roughly $850 billion in the bond markets this year, double the pace from last year. Analysts at JPMorgan Chase anticipate that investment-grade companies will borrow roughly $1.6 trillion from investors by the time 2020 is over.
It has turned conventional wisdom on its head.
The increased borrowing can be traced, in part, to the actions of the Federal Reserve. The central bank slashed interest rates back to rock-bottom levels, making it attractive for businesses to refinance and borrow more to build a cushion of cash. But an even bigger factor was the Fed’s announcement — in the heat of March’s market upheaval — that it would buy corporate bonds.
Investors have been so emboldened by the Fed’s actions that even companies viewed as especially risky are having no problem borrowing heavily despite a deeply uncertain economic recovery weighed down by surging infections and rolled-back reopening plans.