QE's big success: Renaissance of the junk bond market

There was a good article this morning in the FT, "Corporate bond sales set to beat 2012 after passing $3 trillion." The story inside the story is more specific, however: Junk bond issuance is at record levels and the ability to issue has depressed defaults to only 2.2% of outstanding bonds. It is estimated that issuance will be greater than $500 billion globally, over twice the 2006 level of $208 billion. ($56 billion in 2008)

QE has certainly encouraged some degree of imprudent lending in the public markets but how much is hard to say. Of course, the higher the future inflation rate the lower will be the default rate in these issues, and vice versa.

I have been asking myself why free money in the public markets has not sparked a boom. I suppose the answer is that the contraction of the banking system has offset the looseness in the public markets. This is an advantage for large companies and a disadvantage for small and medium ones, as the latter do not have access to the public markets.