Jeffrey Cleveland, Karen Rothman, Justin Ho discussed on Marketplace


This is marketplace, I'm KAI Ryssdal. We talk with some degree of regularity about bonds on this program government bonds, first of all, and they're also important interest rates also corporate bonds debt that companies issue to borrow money to expand an invest, but not all debt is created equal. There are bonds that are super safe, and there are bonds that are less safe, but more remunerative and that slice of the corporate bond. World has been showing some signs of trouble. Marketplace's Justin ho has that one corporate bonds are graded by the ratings agencies ratings like a double. Triple b Karen Rothman is at John Hancock asset management the credit rating comes from the perceived risk of default bonds that score low are considered junk, the formal phrases high yield. And this is not an insult. It's a wager. Higher return higher risk of the fault. Rothman says junk bonds or common for companies that tends to. Carry a lot of debt a good number of bonds are issued by energy companies other issuers in the market that are quite large. Telecommunications companies media and technology companies and healthcare companies sprint has been selling. Billions in junk bonds to help build its giant five G network. Del Sol junk bonds to finance and acquisition in two thousand sixteen junk bonds are part of a normal growing economy. But when there are signs the economy is slowing down that could mean that default rates in in the corporate space will pick up. That's Jeffrey Cleveland chief economist at painting and regal. He says that could explain why investors withdrew a record amount from junk bond funds last year. The volatile stock market isn't helping investors appetite for risk either. Cleveland says junk bonds or a barometer for economic slowdowns the times when you see the worst performance in high yield or around the time of a recession. So if that's why money is leaving the space and that is that is more worrisome phenomenon investors. The only ones shunning junk pants companies have been issuing them. Because those high yields are expensive to pay out. There wasn't a single junk bond sale December. But there are signs of recovery. In the junk bond market for one companies are selling them. Again this month poetry prescribe is managing director at panko prisoner. If you wanna expand or they want to buy another company at some point some of the companies that are going to be pushed by the realities of their business to come to the hail market. But there are still concerns. Pass quality says right now investors are more worried about companies like General Electric, giant beleaguered conglomerates whose corporate bonds haven't been given a junk rating yet the question with certain companies like GE where to have a lot of debt on their balance sheet and their earnings are presumably on one trajectory, and that's downwards the are at risk of becoming downgraded to high yield right now. There's roughly a trillion dollars of the kind of barely passing that. If that debt gets downgraded. It would flood the junk bond market making their values fall, even lower in their yields even higher in New York. I'm Justin how for marketplace. President Trump signed the government.

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