In the decade since the global financial crisis, the value of nonfinancial companies' outstanding bonds has nearly tripled, owing not least to growth in corporate debt in emerging markets. But while a correction seems likely as defaults rise, the broad shift toward bond financing is actually a welcome development.
WASHINGTON, DC – Is growing corporate debt a bubble waiting to burst? In the ten years since the global financial crisis, the debt held by nonfinancial corporations has grown by $29 trillion – almost as much as government debt – according to new research by the McKinsey Global Institute. A market correction is likely in store. Yet the growth of corporate debt is not as ominous as it first appears – and, indeed, in some ways even points to a positive economic outcome.
Over the past decade, the corporate-bond market has surged as banks have restructured and repaired their balance sheets. Since 2007, the value of corporate bonds outstanding from nonfinancial companies has nearly tripled – to $11.7 trillion – and their share of global GDP has doubled. Traditionally, the corporate-bond market was centered in the United States, but now companies from around the world have joined in.
The broad shift to bond financing is a welcome development. Debt capital markets provide an important asset class for institutional investors, and give large corporations an alternative to bank loans. Yet it is also clear that many higher-risk borrowers have tapped the bond market in the years of ultra-cheap credit. Over the next five years, a record $1.5 trillion worth of nonfinancial corporate bonds will mature each year; as some companies struggle to repay, defaults will most likely rise.
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WASHINGTON, DC – Is growing corporate debt a bubble waiting to burst? In the ten years since the global financial crisis, the debt held by nonfinancial corporations has grown by $29 trillion – almost as much as government debt – according to new research by the McKinsey Global Institute. A market correction is likely in store. Yet the growth of corporate debt is not as ominous as it first appears – and, indeed, in some ways even points to a positive economic outcome.
Over the past decade, the corporate-bond market has surged as banks have restructured and repaired their balance sheets. Since 2007, the value of corporate bonds outstanding from nonfinancial companies has nearly tripled – to $11.7 trillion – and their share of global GDP has doubled. Traditionally, the corporate-bond market was centered in the United States, but now companies from around the world have joined in.
The broad shift to bond financing is a welcome development. Debt capital markets provide an important asset class for institutional investors, and give large corporations an alternative to bank loans. Yet it is also clear that many higher-risk borrowers have tapped the bond market in the years of ultra-cheap credit. Over the next five years, a record $1.5 trillion worth of nonfinancial corporate bonds will mature each year; as some companies struggle to repay, defaults will most likely rise.
To continue reading, register now.
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