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After the fall

John O’Sullivan: Buttonwood columnist, The Economist

There will be surprisingly few corporate defaults

Default is in our stars

Cheap money and fiscal support will keep a lot of big firms alive

ONE CONSEQUENCE of the coronavirus pandemic is that the slummier end of the
corporate-bond market has become gentrified. The terminology softened long ago:
bonds that are not of investment grade used to be called “junk” but are now labelled
high-yield or speculative-grade. The neighbours are a lot classier, too. Renault, Kraft
Heinz and Marks & Spencer are among the well-known firms to have lost their
investment-grade status. It is likely that 2020 will set a record for the value of such
“fallen angel” debt.

Companies had sold around $1.5trn of investment-grade bonds by the end of the third
quarter—enough to ensure that 2020 will also be a record year for bond issuance. Firms
also exploited their bank-credit lines to the limit. Overall, business debt in America rose
from 75% to 90% of GDP in the first half of 2020.