The volume of non-performing loans in the U.S. has reached its highest level since the pandemic began — JPMorgan

The volume of nonperforming loans issued to companies with high debt burdens in the U.S. has reached levels not seen since the start of the pandemic. The technology sector has come under the most pressure, according to Bloomberg, citing a report by JPMorgan Chase strategists.

According to analysts at the investment bank, the value of “deeply distressed” debt—which trades at less than 60% of its face value, that is, at levels indicative of severe stress— — has risen over the past year from $40 billion to $65 billion, hitting a new high since March 2020. Meanwhile, the total volume of distressed loans has increased by nearly 90% to $139.8 billion. As JPMorgan strategists note, this is just $4 billion less than the all-time high recorded in May 2020. There are currently 141 such borrowers in the market—35 more than a year earlier.

According to the report, technology companies account for the largest share of non-performing debt—39 percent, or $54.4 billion. Among the largest non-performing borrowers were software developers such as CDK Global, QLIK Technologies, and Quest Software.

Software companies are facing increasingly difficult refinancing conditions as more than $100 billion in debt approaches maturity, according to Bloomberg. In addition, pressure on the sector has intensified this year due to concerns that the development of artificial intelligence will disrupt the business models of companies providing traditional software services.

The situation is also deteriorating in the riskiest segments of the debt market. According to JPMorgan, yields on loans to highly indebted companies with a CCC rating—the lowest tier of the “junk” category—have fallen by 1.97% since the beginning of the year, while all other segments of the speculative-grade category have shown growth.

In the high-yield bond market, credit spreads on distressed CCC-rated bonds exceeded 1,000 basis points. This is the highest level since the 2023 U.S. regional bank crisis, when investors were dumping risky assets en masse. Yields on CCC-rated bonds jumped to 15.58%—the highest level since November 2022.

Since the beginning of the year, the volume of defaults on “junk” bonds has exceeded the corresponding figure for loans to highly indebted companies—a first since 2020, according to strategists. At the same time, JPMorgan expects the situation in both segments to worsen next year.

This article was AI-translated and verified by a human editor