Here’s an interesting twist in the new reality:
With rising fears of a prolonged recession and stomach-churning moves in the stock market, corporate bond markets have performed so well this year they look like they’re part of a parallel universe.
Banks are reluctant to lend, but large corporations with the weakest credit ratings have had little trouble finding investors happy to hand over their cash.
Companies sold $24.6 billion in junk bonds in August, the eighth-best month ever for sales, according to Thomson Reuters data. Among those feeding in the market: Goodyear Tire & Rubber Co., Rite Aid Corp. and acquisitive power giant NRG Energy Inc.
So how is it that companies with bad credit find it so easy to borrow in this economy?
“A lot of that has to do with living in a world where investments pay less than 1 percent,” said Diane Vazza, head of fixed income research at rating agency Standard & Poor’s.
More and more companies are refinancing their corporate debt, getting rid of high-interest bonds in favor of a lower interest rate. In many ways this trend is a positive as companies lower their debt costs, having the exact effect that the Fed intended.