- Worries about BBB debt abound but debt service ratios ‘well within norms’

- BBB space has exploded in size last 10 years to $3T

- BBB has returned 9% this year

I admit to being old enough to know there was a time when General Electric’s (GE) corporate bonds were highly rated instead of living at the bottom of the investment grade (IG) rating scale—among the BBBs—as is the case now. Equity investors might not be aware that the U.S. BBB corporate credit space has exploded in size in the past decade, up to roughly around $3 trillion in total, or about 50% of total investment grade. It dwarfs the $1.3 trillion high yield bond market, the next rung below it.

It’s easy to see why. Big banks scaled back lending for regulatory reasons since 2009. What corporate America did in response is straightforward: CEOs have taken advantage of the extraordinarily low interest rates of the past decade and loaded up on cheap debt to buy back stock; boost returns on equity; pay dividends and make investments. Additionally, investors have become more comfortable with IG’S lower rungs. One thing helped that. Yield. This year yield seeking investors and BBB investors have been rewarded, driving a nice rally in both BBB as well as high yield (HY) markets. For example, the Blo...

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