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Alarms Still Blare on Triple-B Bonds, But No One Cares

(Bloomberg Opinion) -- In the bond market, it can sometimes feel as if the more things change, the more they stay the same.

Consider the following two articles about the massive amount of triple-B rated corporate debt:

“A $1 Trillion Powder Keg Threatens the Corporate Bond Market” by Bloomberg News. The takeaway: “A lot of these companies might be rated junk already if not for leniency from credit raters. To avoid tipping over the edge now, they will have to deliver on lofty promises to cut costs and pay down borrowings quickly, before the easy money ends.”

“Bond Ratings Firms Go Easy on Some Heavily Indebted Companies” by the Wall Street Journal. The takeaway: “Amid an epic corporate borrowing spree, ratings firms have given leeway to other big borrowers. … The buildup has fueled one of the most divisive debates on Wall Street: Will higher debt loads cause big losses when the economy turns?”

The first one is from October 2018 and the second from a couple of weeks ago. That alone isn’t what’s most interesting — financial-market themes tend to repeat themselves, after all. Rather, it’s the fact that market appetite for those bonds on the brink of junk couldn’t be any more different between then and now, even though it’s clear that fears about ratings inflation and a huge wave of downgrades haven’t gone away.

Around this time last year, Scott Minerd, global chief investment officer at Guggenheim Partners, made headlines by tweeting that “the slide and collapse in investment grade credit has begun,” starting with General Electric Co. No one seemed to want to own bonds rated just a step or two above junk — the Bloomberg Barclays triple-B corporate-bond index trailed the broad market in 2018 for just the second time since the financial crisis. I was willing to be contrarian after his comments, writing that investors shouldn’t fear...

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