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For Battered Junk Bond Market, an Old Risk Grows Louder Each Day

  • $868 billion in investment-grade debt vulnerable to downgrades
  • Companies like Ford and Occidental teeter on high-yield status
Cars Being Being Broken At A Vehicle Scrapyard
Photographer: Bloomberg Creative Photos/Bloomberg
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Investors have long been sounding the alarm: An unprecedented number of companies had loaded up on cheap debt that left them hanging, just barely, onto investment-grade credit ratings. A weak business cycle, they said, could push those companies into junk territory.

Now, that warning is moving closer than ever to reality. The double blow of a global pandemic and plunging oil prices is tipping the economy into recession. That is making the lowest tier of investment-grade companies vulnerable to downgrades to high-yield status -- a designation that could drive up their borrowing costs and set off a wave of selling from investors who aren’t permitted to hold such low-quality debt.