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Economy , Interest Rates , ETFs
     

Why U.S. Corporate Bankruptcies Could Skyrocket

"U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average"

by Bob Stokes
Updated: July 02, 2021

An April 17 article headline on the website of National Public Radio says:

U.S Economy Looking Good As Spending Jumps In March

And, on April 29, The New York Times said:

Americans' spending on durable goods -- cars and furniture and other goods meant to last a long time -- rose at a stunning 41.4 percent annual rate in the first three months of the year.

Considering that the economy is "looking good," economic observers might conclude that a wave of corporate bankruptcies is of little concern.

However, that conclusion would be off the mark.

Our June Global Market Perspective provides insight with this chart and commentary:

Gold Trading Guide

U.S. bankruptcies in the first quarter of 2021 and all of 2020 were above the 13-year average. In March, there were 61 announced corporate bankruptcies, the highest total since July 2020. If companies are defaulting in record numbers in China and at above average levels in the U.S. with interest rates at historic low levels, what will happen when rates rise appreciably?

That's right, defaults would zoom higher.

Understand that in the U.S., "the level of outstanding corporate bonds is the highest in history at approximately $10.6 trillion." This represents almost half of annual U.S. GDP.

A positive social mood has led executives at many U.S. firms to believe that they can issue and service ever-increasing levels of debt.

But interest rates may rise a lot higher than many businesspeople expect. Hence, many corporate bonds would lose value.

Indeed, our June Global Market Perspective provides Elliott wave analysis of the iShares Core U.S. Aggregate Bond ETF, the largest exchange-traded bond fund in terms of assets.

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