I'd like to think the savvy among us realize that credit bubbles and their subsequent pop/crash/crisis are a product of the Greenspan/Bernanke/Yellen Fed. They all deserve to ROT IN HELL for the damage they've done to our country*... and we haven't seen the worst of it yet!! *While we're at it... let's not forget the damages of GWB and Odumbo!
No. The problem is that before the virus selling, the treasury yields (for many years) were relatively stable. It was an 'easy money' risk-on environment. It benefited banks because they can repackage loans and sell them to hedge funds and institutions as long as they are rated investment grade. ZIRP made this market essentially mandatory for pension funds, etc. They were yield starved. Hedge funds trade high yield paper against lower yield, and also make markets in this shit. So if the whole market implodes then their inventory is getting destroyed. They have to widen spreads... This means that the hedge funds, market makers in yields spreads, and high yield in general is desperate for liquidity. Bad combination for market participants. It's getting out of control. So, it's like whats happening in the stock and index futures market. If the stocks become illiquid then the futures do too. Then the options MMs have to make a wider market, and so their is more volatility. Problem is, these instruments only sell to pension funds and institutions, and so the market is huge (in dollar terms). If it is downgraded then they won't even be legally allowed to invest in it. Basically, the assets will no longer qualify as collateral in the financial system. The hedge funds are investment bank clients. It could get really ugly man....
The 2-3 trillion dollar question is - can S&P and M be stopped from downgrading the junk. I bet so. Can the corporations who belong to the junk bonds be stopped from bankruptcy forever? I don't know.
Re-read what you wrote. So basically mortgage backed securities 2.0, but now the entire corporate world. This is amazing. I love the fucking morons who create this shit. Ray Dalio called out corporate credit, no doubt he is hoping for it to break and will profit.