Securities Markets in the 1980s: The New Regime, 1979-1984

By Barrie A. Wigmore | Go to book overview

8
The Corporate Bond Market

The new regime of high interest rates, a strong dollar, declining oil and other commodities prices, and steep recession achieved lower inflation and ultimately steady economic growth at the price of profound credit distress in important sectors of American industry and the farm community. In many respects, the corporate bond market bore the brunt of the unintended negative effects of the new regime as industries accounting for 53% of the publicly issued, nonfinancial, corporate debt either had severe credit declines or passed through unusual credit crises. Most of the problem industries were the same ones that we saw as underperforming industries in the stock market.

Very little attention has been paid to this credit decline because of the more obvious credit decline in the late 1980s, when corporate America made heavy use of debt for acquisitions and related corporate restructurings. In many respects, the 1979-1984 decline was more fundamental, caused by declining returns on invested capital due to the strong dollar and declining commodities prices, especially oil. Increased leverage was a minor factor in this corporate credit decline, and in general management did not have the power to reverse it, in contrast to the credit decline of the late 1980s, which reflected strategic decisions to increase leverage. To a considerable degree, the decisions of the late 1980s, were reversible by future strategic decisions, such as selling equity, selling assets, or taking a leveraged buyout public again. In contrast, the oil, metals, agricultural, and machinery industries experienced permanent negative effects on their credit in the early 1980s. And two of the largest industries, autos

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Securities Markets in the 1980s: The New Regime, 1979-1984
Table of contents

Table of contents

  • Title Page iii
  • Preface vii
  • Contents ix
  • 1 - Introduction 3
  • 2 - The Change in Regimes 15
  • 3 - The New Regime Revives the Common Stock Market 79
  • Summary 107
  • 4 - The Underperforming Industries 118
  • Summary 174
  • 5 - The Overperforming Industries 178
  • Summary 210
  • 6 - U.S. Treasury Markets 211
  • Summary 240
  • 7 - The Mortgage Securities Market 242
  • Summary 252
  • 8 - The Corporate Bond Market 253
  • Summary 295
  • 9 - The Merger and Acquisition Market 301
  • Summary 361
  • 10 - Conclusions 366
  • Notes 380
  • Index 401
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