The third fiscal quarter saw the issuance of record-setting amounts of corporate debt, said the Wall Street Journal. Third quarter investment-grade bond sales totaled $267.85 billion, more than any other time since they first began collecting data on this in 1995 (when, incidentally, bond sales added up to $18.2 billion). This sum, as mighty as it might seem, is far smaller than the overall total value of all bonds sold this year, $1.4 trillion.

For the sake of comparison, data from the Federal Reserve shows that it took seven years for debt levels to climb that high before the pandemic, going from $6.4 trillion in the first quarter of 2008 to $7.7 trillion in the first quarter of 2015. What took seven years to do before the pandemic took less than one year to do after. And the year still has three months left.

This is largely a result of Federal Reserve policies meant to support credit markets amid a major economic crisis. The central bank this year has slashed interest rates to near zero, while at the same taking the unprecedented step of directly buying corporate debt. This has served to dramatically push down the price of debt while, at the same time, ensuring there will always be a buyer for it, even if that buyer is the Fed itself. But the central bank does not need to do all the work here. The Journal said that with interest rates so low, each individual bond yields far less than it did pre-pandemic, leading markets to try making up the difference by buying even more. 

Outside the corporate sector, the International Monetary Fund recently raised the alarm about sovereign debt as well. It said that, compared to the end of 2019, average 2021 debt ratios are projected to rise by 20 percent of GDP in advanced economies, 10 percent of GDP in emerging market economies, and about 7 percent in low-income-countries. And this is on top of the already high levels of debt countries had before the virus. While sovereign debt payments were suspended in response to the crisis, the IMF noted that this pause will soon end, meaning that the world could soon see a series of sovereign debt crises similar to what was seen in Greece or Argentina.

"About half of low-income countries and several emerging market economies were already in or at high risk of a debt crisis, and the further rise in debt is alarming. Just as they are starting to recover from the pandemic, many of these countries could suffer a second wave of economic distress, triggered by defaults, capital flight, and fiscal austerity," said the IMF.

It called on G20 nations to maintain the current debt suspension into next year, while indebted countries use the breathing room to address their leverage. In the longer term, though, the IMF said there needs to be reform of the sovereign debt "architecture" to better support orderly debt restructurings.