U.S. Corporate Debt Is A $9 Trillion Problem

Many people don’t realize that the global bond market is actually larger than the global stock market. The estimated total worth of all bonds is more than $100 trillion, while global stocks add up to around $64 trillion.

The amazing part about the global bond market is that, according to some estimates, it has tripled in size over the last 15 years. Tripled!

The U.S. accounts for 40% of the global bond market alone. That’s $40 trillion in U.S. bonds versus a $20 trillion U.S. stock market.

As investors, we have to pay attention to bond markets because what happens there affects stocks too. When bond yields fall, stocks are more attractive by comparison. The opposite is also true.

Corporate bonds make up about $9 trillion of the U.S. bond market. That’s nearly 25% of the overall market. That’s a lot of debt – about half what the entire U.S. stock market is worth.

Thanks to recent Federal Reserve interest rate hikes, the mainstream media is suddenly paying attention to the corporate credit bubble.

Bloomberg just ran an article headlined “Corporate Debt Crises Could Come Faster and Harder in 2019.” I agree, and I have a feeling this discussion is just getting started.

So, how big of a problem is corporate debt in the U.S.?

Pretty darn big. Let’s look at some examples.

Toys R Us got itself neck-deep in debt. Then it had a weak period of sales and went bankrupt.

J.C. Penney has $4 billion in debt and weak sales, and it looks to be on the brink. Its shares are trading at $1, giving it a valuation of just $345 million.

General Electric (GE) has an astounding $114 billion in debt and is selling off valuable parts of its business to stay afloat. Shares of GE are trading around $7.50, down from around $31 in July of 2016.

Disturbingly, the Fed’s interest rate hikes (small as they have been) appear to have contributed to their woes.

J.C. Penney and GE are not alone. Companies are beginning to struggle with debt, even though rates are still well below normal levels. All this debt means an economic slowdown could push a lot of companies over the edge.

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David P. Goldsmith 9 months ago Member's comment

Could have sworn Fred’s corporate debt chart shows it at 20 trillion.

William K. 9 months ago Member's comment

Holding on to cash is certainly less risky than debt, OR is it? Not spending to be ready for the future could be a false economy. Of course, spending on development is a lot different than spending on share buybacks.

Kirk Sheffield 9 months ago Member's comment

If the US didn't become the oil net exporter this yr, the Great Depression would be revisited. It's all about oil!

James Madison 9 months ago Member's comment

Corporate debt and monopolization are killing business.