The Credit Market’s Early Warning System Is Weakening
Watchful markets.
Photographer: Michael Nagle/Bloomberg
US companies are on a borrowing binge, and debt markets don’t seem the slightest bit concerned. Companies issued a collective $2 trillion of public debt in each of the last two years, up from $1.5 trillion in 2022 and 2023. Yet credit spreads — the extra yield companies pay relative to the government — are at historical lows for both high-grade and junk bonds, a sign the market is confident that companies can pay back their debts.
Not everyone is so sure. Much of the recent, massive borrowing backs acquisitions and investment in artificial intelligence with uncertain, even speculative, payoffs. Interest rates are also double what they were a few years ago, making borrowing riskier. JPMorgan Chase & Co. already sees signs of stress in rating agencies downgrading many more corporate bonds last year than they elevated.