In March this year, the Fed announced that it would buy corporate bonds, the first time the Fed has taken such a drastic measure. Since the start of the bond buying program, the Fed has expanded into purchasing corporate junk bonds (bonds issued by the riskiest borrowers). This action, coupled with low interest rates, have allowed corporate bond prices to be propped up, and corporate bond yields to be very low. This has made it very easy for companies, even the very risky ones, to issue bonds and borrow at very low interest rates. In August, packaging company Ball Corp. issued a 10-year junk bond with a record low coupon rate of 2.875%. The effective yield for junk-rated borrowers is now hovering near 5.6%, down from its 2020 high of 11.4% on March 23.

Corporate America is now choking in debt. Debt of non-financial US companies now stands at around 15.5 trillion or 74% of US GDP. Of this amount, about 1/3 is in the form of leveraged loans and below investment grade bonds.

What do you think could be the effects of high corporate debt levels on the economic recovery and future stock prices?