I learned about the Bond Market Today and now I must share what the Bond market is and how the Bond Market operates. Questions that come up about the current Bond Markets? Is all this Cash Debt toxic? Will Interest rates be going up? How many Companies were Downgraded in 2020? Since this post will probably be very dry and boring to most who read about Wall Street? I might as well spice it up with a little flavor. LOL I must remember a Hilarious Jewish Comedian whom I literally Idolized as a young man and still love to this day. “Rodney “No Respect” Dangerfield” The king of one liners. LOL

Rodney Dangerfield was born Jacob Rodney Cohen in the Village of Babylon, in Suffolk County, Long Island, New York, on November 22, 1921. Here is a one liner from Mr. Dangerfield to get you in the mood of talking big Money and Big Debt in the Bond Market. “Sir. I talked to your wife today and I must share I really don’t like you.” Rodney respond’s “Good! Great!! Congratulations….I don’t like myself sometimes. You can keep her!!!” Cue the symbols background noise! LOL Oh, By the way! I would love to take this opportunity to share Happy Hanukkah with everyone on this last day of the celebration.

I must share it is really fantastic to have Sidley & Austin associates here on location. And especially for these Attorneys being my very own Professors or better yet personal tutors. Since I am apart of the fabric here now, I must share with them a little something I learned while serving in the Military. As a type of affection and camaraderie I developed incredibly creative nicknames for each professor. Interestingly I was assured anything I do will be used against me. All things considered. I am happy to report. I will be pushing my luck with these younger Associates.

Let’s get started. I assume most professional writers who are reading this will CRINGE!!! LOL But since this blog is written by a real business guy and not a Professional writer some trade offs must happen.

What is the Bond Market?

If I am being transparent most people have no idea what the Bond market is and also that it is shrouded in mystery. It really isn’t that complicated. The Bond market is comparatively like the Stock market but it’s for Corporate Fortune 500 Companies. Generally Wall Street has 2 markets. The Stock Market and the other side “The Bond Market”. Most fortune 500 Companies gain access to the Bond market and borrow Cash from this Market that is similar to the Stock Market. Individual investors Bonds in smaller amounts from Big Companies. And these individuals are issued interest payments called coupon’s. Currently the Bond Market has been estimated at a staggering and dangerous 11 trillion dollars in Debt. This debt all belongs to corporate America.

How the Bond Market Functions?

Experts all say the Corporate Bond market is hanging on by a thin string. The reason is likely that super low Interest rates left over from the 2008 Financial Crisis is likely the reason. Made it very easy for Companies to borrow cheap money. Experts also believe the next Economic Crisis and collapse could result from the Bond market itself. I guess we will hopefully avoid catastrophe. The Federal Reserve Chairman has publicly stated they do keep an eye on the Bond Markets activity.

What are the two Bond Types?

It is said that some of the most influential Fortune 500 Companies like Kraft Hienz, Ford, and Macy’s are already junk bond status and currently issuing IOU’s to Bond holders. Meaning they are having trouble paying. Junk Bond Status means they are the riskiest types of bonds. And that these Bond Issuers have failed in the past to pay their bond coupon holders. Meaning they have defaulted. Which really begs the simple question. “How long can Corporate America’s Junk Bond Defaulters continue to do this circle of using debt for the Companies Operations with no growth?

What are two types of Grades for Companies Issuing Bond’s

• Investment Grade Bonds – These are the highest rated Bond Types
• High Yield Bond’s – Are considered Bonds that have been downgraded because of past default. “JUNK BOND’S”

Please do watch Investing with Rose Youtube Channel. It’s fantastic. Here is a video that explains the Bond Market and Investing 101 Basics.

I would love for you to imagine we are standing on a plateau with a cliff lookind down into the Grand Canyon. This drop-off the cliff represents the fall a company from defaulting on their debt or coupon or interest payments they must make to bond holders. Once a company falls off the cliff. They are downgraded to Junk Bond high risk status. CNBC reports that right now there are literally hundreds of companies that are on the cliff of Default from the Markets low interest rates being downgraded to Higher Rates. When this happens all these Investment Grade Bonds will be forced off the cliff. And be downgraded to Junk Bond’s if they can not pay their Bond Holders payments. Once a company goes over the cliff they are in trouble. I hope that makes sense? Good.

There is a ton of pressure on Asset Managers to sell the Bonds which cross over to Junk Bonds and fall off the cliff.

Fallen Angels = Any company in the Bond Market that get’s downgraded by rating companies.

Will Interest rates be going up soon? If Interest rates do go up and they eventually will, the economy will turn worse than the Great Depression is what I keep hearing. I guess we will see.

It was reported that over 50 Large Fortune 500 Companies were downgraded to Junk Bond Status in 2020. That is really scary to think about.

Back to the Associates who helped me understand the Bond Market today.

Back to my substitute Bond Market Professors. There are 2 associates and one Partner from a very well known law firm in Chicago. Now on to the nicknames I have given them in an attempt to be humorous with these very serious personalities.

I would like to take this opportunity to Thank my new Professors. They are rockstar Transaction Attorneys from a very well known Transaction Services Law Firm Sidley & Austin. It’s honestly very generous of my good Friend who has arranged this education and experience being around these Attorneys.

I gave my new professors 3 Nicknames. Because in all honesty when you serve in small teams in the Military you become use to working as a team and along the way you will earn a nickname of some sort. That is the history of creating nicknames for people you work closely with.

The Big Partner of this Firm and has been the head honcho of this operation is Nicknamed “Professor Debt Collector” In all likely hood if your a company president and you receive a letter from this Partner? It’s likely your going to pay. So after hearing a few stories from this Law Firm Partner. I quickly assigned him this nickname.

Senior Associate Mr. X – is usually the lead on transactions for this Law Firm and is great about covering all his bases and researching who you are. LOL In the Holiday spirit of him not liking Holiday Decor or Christmas. We shall give this Professor the Moniker “Professor Grinch!” It seemed fitting. Since his Kids loved the idea. When asked if he agree’s with his new nickname “Professor Grinch” Snarled at me and commented…. “You do not have the right to give me such names”. Sharing a evil sinister laugh while walking away.

Then we have the Junior Associate Attorney & Professor who has been at my side this entire time. She is fantastically generous and could honestly make a Grumpy Bear laugh. So with this information she is able to explain the markets with precise accuracy and adding political scope. “Which I love by the way.” We gave her the Name of Madam Secretary. Which was fitting given her personality.

Thank you for reading this Post. I do recognize I will not ever be a professor. But at least I can bring a smile to someone who needs a little entertainment while reading about business which clearly can be boring.

Thank you again and Godspeed.
JS