The Wall Street Journal reports today that last week set a new record for junk bond issuance. It's amazing, really, to consider that only a year ago we were mired in the worst financial crisis in a generation and now junk bond demand is stronger than ever.
On the face of it, this massive new junk bond issuance seems to fly in the face of the deleveraging thesis. However, the article reveals that,” these new deals are improving the companies' balance sheets by repaying existing debt and pushing back maturities. These overleveraged companies hope they can get more time to improve operations and benefit from an economic recovery.”
So companies aren't using the funds to invest in new profit initiatives which would be a boon to the economy; they are focused intently on repairing their beleaguered balance sheets. Deleveraging is, indeed, alive and well.
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