Higher-risk businesses have traditionally funded themselves with a mix of high-yield bonds and leveraged loans. Over time, the balance between the two has swung back and forth because of investor demand, the interest rate environment, and other factors. In the past few years, leveraged loans have grown far more quickly (figure 3).
In fact, while net new issuance of high-yield bonds in 2018 was close to nil, leveraged loans outstanding rose 20 percent and now stand at more than $ trillion. So far this year, issuance of high-yield bonds and leveraged loans has been more balanced. In addition, underwriting standards have weakened.