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Fed-Sponsored Artifact

A dash for cash is on. In yet another Fed-sponsored artifact, Companies Are Rushing to Borrow Cheaply While They Still Can.

Corporations have sold more than $47 billion of notes in the U.S. through Wednesday, around 60% above the same period in 2019. In Europe, investment-grade and junk bond sales including company and country debt broke a 79 billion-euro ($88 billion) weekly record set a year ago. And in Asia outside Japan, there have been more than $12 billion of sales, a record start for the year.

“Investor demand has been at, or close to, record levels in many instances,” said Lee Cumbes, a managing director in debt capital markets at Barclays Plc in London.

Demand is so strong that even companies with some of the lowest credit ratings, which might have struggled to borrow for much of last year, have been able to tap the market. Transocean Ltd., an offshore oil driller, sold $750 million of junk bonds on Wednesday. The notes carry a Caa1 rating from Moody’s Investors Service, putting them in the lowest tier of debt that companies typically issue. S&P Global Ratings has the securities the equivalent of one step higher at B-.

Bond Ratings

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Note that Caa1 is just two steps "above default imminent with little prospect for recovery."

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As long as companies can perpetually roll over debt these zombies can stay alive.

As of May, BBB complex has $3 trillion.

I wrote about it on July 17, 2019 in Junk Bond Bubble in Pictures.

Insave Bid for Bonds - 2007 Flashback

While doing a search on this topic I came across this pertinent warning of mine written Sep 29, 2007: An Insane Bid For BBB Rated Bonds.

"But whatever the reason, or whoever is doing the bidding, as long as there is an insane bid for corporate bonds one step above Junk, the stock market is unlikely to crack."

By the way, this setup is very deflationary.

Mike "Mish" Shedlock