SEC looking at risks posed by boom in lowest-rated investment-grade bonds

13 December 2018 12:51am
The US Securities and Exchange Commission is examining the systemic impact that an economic downturn could have on the high-flying market in the lowest-rated investment-grade bonds, a concern raised by the US Federal Reserve last month.

SEC Chairman Jay Clayton said a key question is whether a downgrade in these corporate bond ratings to junk status could spur a wave of attempted sell-offs by bondholders such as mutual and pension funds. These sales efforts might prove fruitless, he said.

“One thing that we’re looking at in particular is, will the change in ratings for these types of securities trigger substantial selling that wouldn’t be picked up by ordinarily expected demand,” he told the Senate Banking Committee yesterday.