the Volume of corporate debt in the world reached a record level of $ 13.5 trillion at the end of 2019, but the overall quality of the bonds has fallen below the level that was observed before the global financial crisis, according to a new OECD report, reports Reuters.
Issue of corporate bonds was largely due to structural reforms and more expansionary monetary policy worldwide, which has become a source of long term Finance for non-financial firms after the crisis.
as a result, In 2019 non-financial companies worldwide have raised about 2.1 trillion U.S. dollars in the form of corporate bonds.
However, the report of the Organization for economic cooperation and development (OECD) emphasized that compared to previous credit cycles, the current lot of outstanding corporate bonds has a lower overall credit quality with higher requirements on return, longer maturities and weaker protection of investors.
It can make non-financial corporate sector and the macroeconomy more vulnerable to the negative impact of the economic downturn.
the OECD was formed in 1961 as an intergovernmental organization designed to promote global economic progress and trade, consisting mainly of the most advanced countries of the world, which account for about 80% of world trade and investment.
OECD Secretary-General angel Gurría said that a high level of debt to capital in the corporate sector “makes necessary reforms that make all parts of the capital markets appropriate”.
“This should include steps to improve the ability of stock markets to strengthen corporate balance sheets and to maintain long-term investments,” he added.
Just over half (51%) of all new investment grade bonds were rated BBB, the lowest of the available ratings from investmentequal.
between 2000 and 2007, before the global financial crisis, only 39% of corporate bond investment grade were rated “BBB”.
the bonds are not investment grade has also increased, the report said the OECD, which accounts for 25% of all non-financial corporate bond issues in 2019. This figure remained at the level of 20% or higher since 2010, the longest period since 1980 in which the proportion of the issue of bonds of the investment level remained so high.
In 2019, only 30% of the global outstanding stock of nonfinancial corporate bonds were rated “A” or higher and issued by companies from advanced economies, the report says, and the growing volume of outstanding shares is also linked to an increase in repayment obligation.