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Are firms too attached to bonds?

The evolution of corporate debt securities

If you asked FRED how much the U.S. non-financial sector has in outstanding corporate debt securities (i.e., “bonds”), FRED would answer, “Nearly $6.24 trillion, which is over 30% of GDP, which is the highest it has been since the early 1950s.”

Non-financial corporate debt in the form of securities has grown about 6% on average year over year almost every quarter since 2014. Policymakers have recently voiced concerns about excessive borrowing by the corporate sector.

The graph above shows outstanding corporate debt securities as a share of GDP for four countries: the U.S., Japan, the U.K., and China. The ratio of corporate debt securities to GDP is higher in the U.S. than any of the other nations. Japan’s corporate debt-to-GDP ratio in 2017 was around 14%, the U.K. had a ratio of around 20%, and China had a ratio of around 22%. The ratio has increased substantially since the early 2000s, signaling the development and deepening of financial markets.

Now, this comparison provides an incomplete picture of total corporate debt, as corporations can borrow through securities as well as through loans from banks and other institutions. And countries differ in their borrowing traditions: Some prefer to rely on banks, others on security markets.

How this graph was created: Search for and select the series “Amount Outstanding of Total Debt Securities in Non-Financial Corporations Sector, All Maturities, Residence of Issuer in United States” and click “Add to Graph.” From the “Edit Graph” panel’s “Edit Line 1” tab, aggregate the data by choosing “Annual” in the “Modify frequency” dropdown. Then use the “Customize data” option to search for and add the series “Gross Domestic Product for United States, Current U.S. Dollars” to the same graph. Then, in the formula bar, type in a*10^6*100/b to adjust for the units of the first series and obtain corporate debt as a percentage of GDP. Repeat the above steps for the U.K, Japan, and China (using these countries’ respective GDPs).

Suggested by Asha Bharadwaj and Miguel de Faria e Castro.


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