Seven months before 2023, the number of corporate bankruptcies in the U.S. has reached a record high since 2010. According to Standard Pur Global Market Intelligence, 64 firms filed for bankruptcy in July this year, the highest number in recent months, exceeding any month in 2021 and 2022, including some well-known firms such as the home supplies chain Bed Bath & Beyond, transportation company Yellow, Silicon Valley Bank and party supplies chain Party City.

Currently, U.S. face the challenge of high interest rates, which makes troubled companies face higher borrowing costs when financing, especially for those already in financial difficulties, high borrowing costs further aggravate their operating pressures.

Despite the rising number of bankruptcies, Sonu Varghese, a global macro-strategist at Carson Group, suggests three main reasons why investors should not panic over the current bankruptcy trend:

The bond market is typically the first to react when the risk of corporate bankruptcy increases, but at the moment, the interest rate difference between junk bonds and U.S. government bonds is 3.8%, which is still below the average level of 5.4% since 1997.
Bank attitude: Despite the increase in the number of bankruptcies, the default rate of corporate loans is actually falling.In the first quarter of this year, the default rate of commercial loans in all commercial banks was less than 1%, which is even less than 1.1 percent before the epidemic.
Growth in entrepreneurial activity: Increased entrepreneurship and small enterprises are also increasing in line with the increase in bankruptcy applications. Over 29,3 million enterprise applications in the first half of this year included a “wage plan”, which means that these enterprises may be paying wages. This figure grew by 2% compared to the same period in 2019 and grew by more than 21%.

While U.S. faced bankruptcy pressures in the seven months prior to 2023, from a more macro perspective, the market did not show signs of excessive panic. The stability of the bond market, the lending strategies of banks and the growth of entrepreneurial activity all point to the conclusion that despite challenges, the U.S. economy still has a strong resilience and potential.