I'm not well versed in the economics, so could you elaborate how the corporate debt would be a problem in this economy? Wouldn't the lowered rates & other activities by Fed be helpful for the entities with massive debt?
In other words, corporate debt isn't priced according to lowered rates. It's priced according to what bond investors would need to be paid in order to adequately compensate for the risk of Uber going bankrupt.
The only way the Fed would help would be if the Fed bought Uber's bonds, but that would require Uber to be investment grade, which would be laughable, or a "fallen angel", a company which was investment grade before the crisis but has since been downgraded.
This underscores the desperate maneuvers the Fed is undertaking to avoid the inevitable. They've killed the free market to save zombies like Uber, which are unprofitable.
> The Fed said Thursday it will invest up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments as well as fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.
The qualifier is the fallen angels clause which I mentioned. The way this works is that the Fed buys investment-grade ETFs. The underlying indices for those funds still have companies which have been downgraded to junk, which are the falled angels. The Fed isn't going out and purchasing bonds directly in the bond market, they're using existing infrastructure to perform market operations.
I don't think it's impossible to do financial engineering and hacking to the point where we can ignore an occasional fundamental collapse. Like if I owe money to a mobster, but I somehow kill his entire mob and burn all of his notes, so no one has memory of my obligation. It's just throwing my debt into a black hole and I'm not going to pay a dead guy.
Time to bring back the Jubilee?
The only question is if we have to print more than other countries.
*am not a biblical scholar, feel free to correct
This omits part of the investing dynamic and is too simplistic of a conclusion for what's going on right now. There has been sky high investment grade issuance over the past two months and there doesn't seem to be a lack of demand for it. What changes is the price the market demands to hold any asset. There is always a price and that's why companies (cruise and airlines) that are in way worse shape than Uber have been able to raise money both in the debt and equity markets.
>if Uber were to try to sell bonds, the spread over, say, treasuries, would probably be above 8-10%.
> In other words, corporate debt isn't priced according to lowered rates.
These two statements are contradictory. Nothing exists in a vacuum but all else equal, if rates are lower, issuers are usually able to issue for lower all-in yields. Additionally, high yield is a much more idiosyncratic market with way less interest rate sensitivity and new issuance is almost always priced on yield; not spread.
> The only way the Fed would help would be if the Fed bought Uber's bonds, but that would require Uber to be investment grade, which would be laughable, or a "fallen angel", a company which was investment grade before the crisis but has since been downgraded.
The Fed has already helped Uber as well as other high yield companies through the various facilities it has announced. They are not directly affected by any of them but as with all central bank policies, it creates a reach for yield that flows all the way down.