Corporate debt investors, having partied like it’s 1999, should remember what came after that: a big wave of defaults.
The 2000 to 2002 recession looms only faintly in the minds of many on Wall Street, but it may be the best model for the potential pain coming in company debt, said LibreMax Capital’s Greg Lippmann in an interview this week at the Milken Institute Global Conference in Beverly Hills. The consumers that were a key part of the 2008 downturn, in contrast, look relatively strong this time around, he added. Last decade, Lippmann was among the first to recognize that the U.S. housing bubble was near bursting.
The relative risk is evident in part in debt growth: investment-grade bonds outstanding have more than doubled since the end of 2008. Total debt outstanding, including loans, for all U.S. companies grew by more than a third between the end of 2008 and 2017. For consumers, that liability expansion has been much more measured, with total household borrowings up about 3.8 percent since the end of 2008, according to the New York Federal Reserve.