When the Fed broke the last frontier of moral hazard - at least until it starts openly purchasing ETFs and single stocks after the next market crash, thereby fully nationalizing the market - and announced it, or rather Blackrock, would not only expand its QE to "unlimited" but also buy investment grade bonds and the IG ETF, LQD, it effectively tore the bond market into two categories: that backstopped by the Fed, and that which isn't (something we described in "Bond Market Tears In Two: Distressed Debt Is Cratering, As Fed Buying Of Investment Grade Sends LQD NAV Soaring").
It also unleashed the biggest debt bubble of all time.
Why? Because by explicitly guaranteeing investment grade debt, the Fed - by making BBB and higher rated debt effectively risk-free - not only precipitated the biggest one-day surge and inflow into LQD, but unleashed an unprecedented free for all as every single investment grade company - especially those soon to be fallen angels who will be downgraded to junk - have rushed into the bond market to issue debt and raise cash while they can at artificially low yields.
And the data confirms it: according to BofA, after the IG market was largely shut down in the two weeks ahead of the Fed's March 23 bond buying announcement, US new issuance reached a new monthly record of $260.7 billion in March 2020, bringing YtD to $509.7 billion - the fastest ever start to a year and 47% ahead of 2019's pace.
Looking at the use of proceeds, BofA observes that refinancings continued at...