US Junk Bond Market Soars to New Record as Excess Liquidity Prompts Investors to Seek Higher Yields

The US junk bond market has once again swelled to a record-breaking size, thanks to yield-hungry investors and an economy bursting with bottomless liquidity.

A new record-high of 149 companies have taken advantage of America’s high-yield bond market, including crypto exchange Coinbase and medical supplies producer Medline, in an effort to quickly raise cheap liquidity, According to data from Leveraged Commentary and Data cited by the Financial Times. The latest trend is in response to central banks’ generous quantitative easing policies, that cut interest rates to near-zero and unleashed historic amounts of cash into financial markets.

The cheap funds markets have seen an influx of eager investors seeking higher yields, as corporate junk bonds provide a substantially higher return than government debt assets. In fact, the current historically-low interest rate landscape has even prompted some companies with leveraged loans to take advantage, and refinance into bonds that offer a substantially higher yield. According to an index tracked by Ice Data Services, the sharp rise in bond issuance has caused the junk bond market to accrue an outstanding debt face value in excess of $1.5 trillion.

Other data cited by the Financial Times showed that during the month of September, 26 new corporate bond issuers entered the high-yield market— the highest on records dating back to 2005. In the meantime, another 13 more companies have also joined the tally since the beginning of October, with online gaming platform Roblox rumoured to be one of them.

The latest rally into the junk bond market has given rise to concerns that the influx of cheap liquidity is causing corporate debt piles to swell to alarming levels. To make the situation even more complicated, some investors have voiced concerns over lack of time to conduct due diligence on companies issuing the bonds, as often times the duration between the inception and completion of new deals is done within a day.

“A lot of this issuance, like a lot of things we are seeing, is just a byproduct of the excess liquidity we have in the system,” explained Brandywine Global Investment Management portfolio manager John McClainto the Financial Times. “We are seeing excessive amounts of capital chasing returns and trying to find a home. I don’t think it’s going to slow down any time soon.”

Information for this briefing was found via the Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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