US business debt soars by record on bond issuance, loans

In a matter of weeks, the coronavirus outbreak ended the record-long US expansion. Fed policy makers slashed the benchmark interest rate close to zero and the unemployment rate jumped from the lowest in 50 years to the highest since the Great Depression era.

US nonfinancial business debt soared in the first quarter by the most in records back to 1952, as bank loans and corporate bond issuance jumped in companies’ all-out effort to stay liquid during the coronavirus pandemic.

A New York City Police (NYPD) officer wearing a protective mask asks a rider to exit the train so it can be disinfected at the 2nd Ave-96th Street subway station in New York, US on Wednesday (Bloomberg File Photo)

Firms boosted debt by $754.8 billion, or at an 18.8% annualized rate, in the first quarter to a total outstanding $16.8 trillion that surpassed the level of household borrowing, according to a Federal Reserve report out Thursday.

At the same time, household net worth fell the most on record -- to $110.8 trillion from $117.3 trillion -- as stock prices collapsed in February and March amid fears of the coronavirus. Federal government debt surged an annualized 14.3%.

In a matter of weeks, the coronavirus outbreak ended the record-long US expansion. Fed policy makers slashed the benchmark interest rate close to zero and the unemployment rate jumped from the lowest in 50 years to the highest since the Great Depression era.

Low interest rates helped spur a rush in corporate borrowing as the pandemic began shutting down businesses and keeping Americans in their homes. Business investment posted the largest quarterly drop since 2009 in the January through March period.

Corporate bond issuance jumped a record annualized $682.1 billion from the fourth quarter while loans soared $2.3 trillion, as companies tapped credit to withstand a collapse in global demand, the interruption of supply chains and widespread economic uncertainty. Loans from depository institutions surged an annualized $1.6 trillion.

The decline in household net worth was almost entirely due to the decline in the value of equities. Stock prices have since largely rebounded from their March lows, suggesting net worth will recover in the second quarter.