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Increasing Share of BBB-Rated Bonds and Changing Credit Fundamentals in the Investment-Grade Corporate Bond Market

May. 01 2019 — Since the 2008/2009 financial crisis, BBB-rated bonds have seen significant growth in the U.S. Today, they constitute more than half of the U.S. investment-grade bond market. The increasing share of BBB-rated bonds has dragged the S&P U.S. Investment Grade Corporate Bond Index average credit rating lower, and is accompanied with higher leverage of BBB-rated bond issuers.

The U.S. corporate bond market has grown significantly since 1980. Issuance paused briefly in 2008 and the growth continued shortly after the global financial crisis. From 2007 to 2018, U.S. investment-grade and high-yield corporate bond markets[1] grew by 194% and 98%, respectively.

During the same time period, growth of BBB-rated bonds (which have the lowest credit rating among investment-grade bonds), outpaced both investment-grade bonds as a whole and high-yield bonds. BBB-rated bonds increased by 330%, or from USD 0.8 trillion to USD 3.4 trillion at year-end 2018 (see Exhibit 1). As of Dec. 31, 2018, BBB-rated bonds made up 55% of the S&P U.S. Investment Grade Corporate Bond Index, compared with 37% in 2007 (see Exhibit 2).

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