Investors’ near-insatiable demand for even the riskiest corporate debt is fueling a Wall Street lending boom, offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy.
Companies such as hospital operator Community Health Systems Inc. and newspaper publisher Gannett Co. Inc. have issued a record $139 billion of bonds and loans with below investment-grade ratings from the start of the year through Feb. 10, according to LCD, a unit of S&P Global Market Intelligence. More than $13 billion of that debt had ratings triple-C or lower—the riskiest tier save for outright default—about twice the previous record pace.
Despite the onslaught of new bonds, riskier companies can now borrow at interest rates once reserved for the safest type of debt.
As of Friday, the average yield for bonds in the ICE BofA US High Yield Index—a group that includes embattled retailers and fracking companies—was just 3.97%. By comparison, the yield on the 10-year U.S. Treasury note, which carries essentially no default risk, was as high as 3.23% less than three years ago. The 10-year Treasury yielded around 1.2% Friday.
“At a high level, you have a meaningful imbalance between supply and demand,” said David Knutson, head of credit research for the Americas at Schroders , the U.K. asset management firm. “The demand exceeds the supply for bonds.”