Other countries such as Sweden and Australia are facing similar vulnerabilities. When it comes to non-financial corporate debt, the worries extend to both advanced economies, including Canada, and emerging economies. The quality of debt has declined, with about 50 percent of investment-grade corporate bonds issued in the United States and Europe now rated BBB.
In a downturn, when corporate profits are challenged, the risk is that these bonds are downgraded, making it more costly for these firms to fund themselves. Corporate debt in emerging markets has also exploded, as investors search for yield in the low interest-rate environment. China accounts for around two-thirds of the more than $ trillion in outstanding emerging-market corporate debt.