Interest RatesRisk

Lots of Corporate Debt Out There…#credit #defaults #corporates

By February 4, 2019 No Comments

Lots of Corporate Debt Out There..

There have been a lot of articles recently about the amount of debt that corporate America has.

You already know about the student loan debt. It’s at 1.6 trillion and climbing quickly.

You know that governments have an enormous amount of debt that is increasing every year, way more than students.

Corporations have also spent a lot of the last 10 years since the credit crisis, borrowing at low rates and have been really expanding their balance sheets. They also have a lot of debt, maybe more than $7 trillion.

When those loans come due, they’re probably going to have to refinance that money at much higher interest rates and that could spell trouble.

I don’t know that there’s going to be a wave of defaults necessarily, but companies are going to be constrained to pay their debts off.

Maybe some of them will go down. Some, like GE, have lost a lot of their luster in the credit markets.

It’s something to be wary about. If you buy individual corporate bonds or funds that buy corporate bonds, keep that in mind. Risk and reward are related. If a bond is paying a yield a lot more than government bonds, than the market is saying there is a lot more risk, there’s no free lunch.

Our philosophy is to stick to investment grade and mostly government bonds because we prefer taking risks in the stock market, not with our bonds.  Of course, people pursue all sorts of different strategies.

My name is Mike Garry, and my company is Yardley Wealth Management. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. (That’s in Bucks County). If you’d like to talk about this or anything else, please reach out: 267-573-1019, mgarry@yardleywealth.net or @michaeljgarry

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Michael Garry

Author Michael Garry

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