U.S. junk bond purchases reach $455 billion, setting a new record

By November 22, 2021, U.S. investors have bought more than $455bn worth of junk bonds, i. e., securities with low credit ratings. Total sales have already set a record compared to the previous one, set in 2020.

Junk bonds are usually issued by companies whose debts far exceed their equity capital. However, since the beginning of the pandemic, they have become more profitable because of government programs designed to create financial incentives for the economy and near-zero interest rates. Still, the high annual inflation rate (6.2% in October 2021) almost destroyed their value. Moreover, in a recent report, the International Monetary Fund warned the U.S. government that an excessive increase in debt among U.S. companies could weaken the entire financial system. The Federal Reserve can reduce their popularity by raising the prime rate. 

According to S&P Global Market Intelligence, total junk bond sales were $43.8 billion in September 2021 and $29.3 billion in October. The total yield as of November 22, 2021, is 4.1%. This is higher than government bonds (-2.93%) and corporate bonds with good ratings (-1.73%).