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Summary: Companies issued around $28 billion in bonds Tuesday. Exxon sold $8.5 billion and PepsiCo Inc. sold $6.5 billion, and both said they would use the proceeds to pay off shorter-term debt known as commercial paper. Goldman Sachs also issued $2.5 billion of bonds, following reverse inquiry from prospective investors. There were zero deals on Monday. The ability of companies—particularly big, creditworthy ones—to keep funding their ones—to keep funding their operations is a key measure of the turmoil that has gripped markets in recent days as the coronavirus outbreak worsens. The picture is bleaker for low-rated companies; high-yield bond issuance has virtually stopped. Classroom Application: This article provides an opportunity to discuss how both companies and investors are responding to the outbreak of the Covid-19 virus and its impact on the economy and financial markets. In particular, the importance of liquidity and pricing of risk can be drawn out in connection with the issuance trends and investor appetite referenced in this piece. Questions: 1. 1. According to the article, why are companies seeking to raise debt and/or draw down on their credit lines? 2. 2. What is the recommendation of former Federal Reserve heads Ben Bernanke and Janet Yellen and why do you think they are proposing this step? 3. 3. Why do you think the “window” for raising debt is opening and closing so rapidly in this environment?
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