More Bonds Are Teetering on the Brink of Junk: Credit Weekly

Core Insights - The US corporate bond market shows signs of potential downgrades, with a significant increase in bonds nearing junk status, rising from $37 billion at the end of 2024 to $63 billion currently [1][3] - Despite the increase in high-yield rated bonds, demand from investors remains strong, and earnings are expected to be robust in the near term, keeping spreads relatively stable [2] Group 1: Credit Ratings and Trends - Approximately $55 billion of US corporate bonds transitioned from investment-grade to junk status in 2025, significantly higher than the $10 billion of firms upgraded to high-grade status [3] - BBB- rated debt constitutes only 7.7% of JPMorgan's US high-grade corporate index, marking a record low, indicating a higher susceptibility to downgrades [4] Group 2: Financial Pressures - Companies are facing increased pressure on their balance sheets due to rising interest expenses as they continue to refinance debt, which may lead to more ratings pressure on weaker credits [2][5] - Overall indebtedness is rising relative to earnings, driven by higher yields post-pandemic, increased spending on artificial intelligence, and acquisitions, suggesting underlying weaknesses in credit profiles [5]