Record Corporate Debt Garners Attention: Unpleasant Shock

Unprecedented Corporate Debt Issuance Reflects Record-Breaking Market Trends

Updated July 2023

We will delve into this topic by providing a historical backdrop. This approach is essential, as it serves both as a reminder that failing to learn from history can lead to repetition and as a means to illustrate the stance we adopted in real-time.

International corporations and governments across the globe are making history by issuing record levels of long-dated debt. This trend is driven by investors placing their bets on prolonged periods of low growth and inflation. With remarkably low interest rates on the international capital markets and robust demand for investment assets, sovereign and corporate borrowers have collectively issued a staggering $253 billion in long-dated bonds within the current year.

This figure represents a substantial increase compared to the $188 billion issued during the same timeframe last year, as reported by financial data provider Dealogic. The surge in long-dated debt’s popularity implies that investors anticipate continued stagnation in global growth despite growing expectations that central banks in developed nations may raise interest rates as their economies exhibit signs of strength. Interestingly, market sentiment appears to differ from these expectations.

In July, the International Monetary Fund (IMF) revised its global growth forecast for the year 2015 from 3.5 per cent to 3.3 per cent. Nevertheless, the IMF maintained that key drivers, such as lower fuel prices and improved labour market conditions, remained intact for accelerating economic activity. Alberto Gallo, Head of European Macro Credit at RBS, noted, “Borrowers are opting for longer-term debt due to meagre yields, driven by market pricing that anticipates a prolonged period of low growth and low inflation.”

He further explained that corporations, for instance, are not leveraging this opportunity to invest in expansion as one might expect in a positive economic outlook. Instead, they are utilizing the proceeds from these debt issuances to buy back their own stocks, reflecting a cautious approach to the economic landscape. This phenomenon underscores the significant shifts in the financial market and corporate strategies, where long-dated debt is now a prominent player in shaping the global financial landscape. Full Story

Record Corporate Debt and Century-Long Mortgages: Balancing Opportunity and Responsibility

Prepare for the imminent arrival of the “forever” or 100-year mortgage, marking the dawn of a new era where one generation may legally burden the next. This development raises concerns that corporations will soon explore the option of issuing 100-year bonds, recognizing that current ultra-low interest rates won’t last indefinitely. It presents an enticing opportunity to secure these historically low rates for an entire generation, all while potentially offering less-than-ideal financial products to the public.

The phrase “Don’t fight the Fed” holds genuine merit, as the masses tend to place unwavering faith in the Federal Reserve and the government’s ability to resolve their financial challenges, even if it means enduring potential long-term financial consequences.

This impending shift in financial instruments underscores the delicate balance between seizing opportunities in the current economic landscape and safeguarding future generations from excessive debt burdens. As financial markets continue to evolve, it becomes increasingly vital to critically evaluate the long-term implications of such financial innovations and their impact on both individuals and society as a whole.

Navigating the U.S.-China Cyber Conflict: Seeking a Balanced Response

Two months after the massive data breach at the Office of Personnel Management (OPM), the Obama administration finds itself at a crossroads, grappling with how to respond to the prime suspect, China. The situation has prompted a series of classified meetings where officials are deliberating various options, ranging from symbolic gestures like diplomatic protests or expelling known Chinese agents from the United States to more significant actions that could potentially escalate the ongoing cyber conflict between the two nations, as reported by The New York Times.

President Barack Obama has called for a creative and measured response. However, cybersecurity expert Dave Aitel, CEO of Immunity Inc., argues for a different approach. Aitel suggests that the government should prioritize securing its vulnerable systems over retaliation. He emphasizes, “If you want to disrupt and deter people from hacking OPM, all you have to do is properly secure it.”

The breach at OPM represents a departure from China’s usual pattern of stealing intellectual property and defence secrets. Instead, the hackers targeted information that could help them compile a database of U.S. diplomats, intelligence agents, and individuals with business interests in China. Aitel emphasizes the need for the government to focus on securing its systems, especially considering that the OPM hack technically fell within the realm of fair game.

This debate over how to respond to cyberattacks highlights the complex and evolving nature of international cybersecurity challenges. The U.S. must navigate a path that effectively deters malicious actors while maintaining a responsible and forward-thinking approach to protecting its own systems and data. Full Story

Were the undergarments at least in place if the pants were off? If not, that’s rather unseemly. We should anticipate more cyberattacks, and if no action is taken, the next breach might leave us in a more precarious situation.

Why isn’t the government prioritizing the security of these networks? Their track record consistently receives failing grades.

Originally published on November 28, 2015, and periodically updated over the years, with the latest revision completed in July 2023.