United States: The danger of a vicious circle between the corporate bond market and the equity market

The pronounced widening of credit spreads in the United States since the summer of 2018 shows the decline in investor s’ demand for corporate bonds because they are concern ed about the outlook for US growth . As companies can no longer issue bonds, they have to stop buy ing back their shares , which drives down share prices and depresses the economy more due to a negative wealth effect, thereby amplifying investor pessimism. The combination of the end of corporate bond issuance and the effects of the decline in share prices also creates expectations of a marked fall in corporate investment with complex implications, for example in the case of oil company investment.