This has led to a boom in the corporate bond market, as corporates looked for alternative funding sources and found a readily available pool of investment capital attracted to the higher yields on offer. Today, 19% of global non-financial corporate debt comes from bonds, up from 10% in 2007.
The widening and deepening of corporate debt markets is usually good for economies, as it expands the capital available to foster growth - for this reason, we see the US model of mixed funding between banks and bonds expanding to other developed economies. The challenge to this model comes when corporates seek to refinance loans that have accumulated in the ‘good’ times but find a bond market that is more risk-averse; this is the environment that we find ourselves entering into.
The period between 2018-2022, sees a peak in refinancing requirements – estimated at between $1.6 trillion and $2.1 trillion annually.