Corporate Debt Reached Record High of $10.5 trillion in 2020

March 12, 2021

U.S. corporations now have the highest level of debt on record, with the total reaching $10.5 trillion in the 4th quarter of 2020, according to the Federal Reserve. While many companies borrowed last year to shore up their finances during the pandemic, corporations have been on a borrowing binge since 2008, when interest rates fell to near-zero levels following the financial crisis.

Many economists worry that corporate debt is a bubble waiting to burst and that much of the debt is held by “zombie companies” who will be unable to avoid insolvency. Roughly $3.6 trillion of corporate debt carries a BBB rating, the lowest rating before a bond will lose its “investment grade” status and be considered junk. Credit downgrades in this space could be massively destabilizing for the bond market.

Now, with concerns about inflation and rising interest rates, more attention is being paid to the corporate bond market. The Federal Reserve noted in their most recent policy report that they were optimistic in the near-term, but that long term, there is “considerable” concern about the insolvency of small, medium, and even large firms.

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