Illustration by Nolan Pelletier
The $260 Billion Funds Distorting the Credit Market
Popular with individual investors, fixed-maturity funds are hoovering up the debt of big companies, reducing borrowing costs but obscuring repayment risk.
A wall of money worth more than a quarter trillion dollars is changing the face of the corporate bond market and has left unwitting “mom and pop” investors among the main drivers of the cost of capital for the world’s largest companies. Through bond purchases often criticized as indiscriminate they have taken on a role that was once the preserve of highly-paid traders — using intricate bond mathematics — in New York, London and Tokyo.
Triggered partly by social media and financial influencers, this change — the scale of which traders, portfolio managers and credit analysts are struggling to fully understand — is coming not from central bank initiatives, or Wall Street, but farmers, teachers, doctors and retirees. Many are buying baskets of bonds as a way to put money that’s been sitting idly in savings accounts to work.