Because Of The Fed’s Backstop, Fallen Angel Volumes Soar

The title of the following graphic is “Even with Fed Backstop, Fallen Angel Volumes Break with History.” But that headline is misleading, it should be “BECAUSE OF Fed Backstop, Fallen Angel Volumes Break with History.”

The whole idea behind Quantitative Easing was to get the economy back on its feet following the financial crisis. But notice that corporate bond issuance started off hot in 2009, but began decreasing afterwards. But with the replacement of Janet Yellen with Jerome Powell on February 5, 2018, The Fed Funds Target Rate (upper bound) hit 2.5% in December 2018 as corporate bond issuance was back to 2002-2007 levels.

Any surprise about the surge in fallen angels (a fallen angel is a bond that has been reduced to junk status because its issuer has fallen into financial trouble. Its bonds pay higher returns than investment-quality bonds but are riskier)? What goes up must come down.

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