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Corporate Bond Markets in a Time of Unconventional Monetary Policy says that non-financial companies have dramatically increased their borrowing in the form of corporate bonds. Between 2008-2018, global corporate bond issuance averaged USD 1.7 trillion per year, compared to an annual average of USD 864 billion during the years leading up to the crisis.
The risks and vulnerabilities in the corporate debt market are also significantly different from that of the previous pre-crisis cycle. The share of lowest quality investment grade bonds stands at 54%, a historical high, and there has been a marked decrease in bondholder rights that could amplify negative effects in the event of market stress. At the same time, in the case of a financial shock similar to 2008, USD 500 billion worth of corporate bonds would migrate to the non-investment grade market within a year, forcing sales that are hard to absorb by non-investment grade investors.
Against this background, the paper cites concerns around global economic growth. In the case of a downturn, highly leveraged companies would face difficulties in servicing their debt, which in turn, through lower investment and higher default rates, could amplify the effects of a downturn. While major central banks have modified their use of extraordinary measures recently, the future direction of monetary policy will continue to affect the dynamics on corporate bond markets. Gross borrowings by governments from the bond markets are also set to reach a new record level in 2019, according to the recent OECD Sovereign Borrowing Outlook 2019.