Warnings about Corporate Bonds of Developed Market

According the Financial Times, BIS warned about weight on some Corporate Bonds rated as triple B, from portfolios of institutional investors. The rate of triple B is the lowest rate in investment grades. What the BIS are worrying about is downgrade of the bonds. Its warnings are pretty reasonable considering that globally, the Corporate has been issuing a ton of the bonds based on the lowest interest rate in the history. The amassed debts have been worsening their financial statements. Even blue-chips like AT&T, Verizon or Kraft Heinz are under pressure of deleveraging from the investors. 

Because some mandates are forcing the institutions like mutual fund to limit share of their investing on the lower grade securities, the downgrade of the triple B bonds could lead them to dump the downgraded bonds. According to the BIS, The mutual funds are investing 45% of their portfolio in the triple B bonds in the US and Europe at this point. The number was 20% in 2010. The BIS predicts that like it did in 2009, the rate of defaults in the securities could rise sharply. The percentages of demotions from the triple B into junk had been 11.4% in the US and 16.3% in Europe during 2009.

The global interest rates will be in the lowest level for a few years with dovish stance of the biggest central banks: Fed, ECB, BOJ and PBC. However, proceeding deterioration of global real economy could lead to flurry in the global asset market.