the ratio of debt to 2 / 4 bis central bankers'speeches assets close to its highest level in two decades on an overall basis, and this is also true for speculative - grade and unrated firms. and whereas previously, mostly high - earning firms with relatively low leverage were taking on additional debt, analysis of detailed balance sheet information indicates that firms with high leverage, high interest expense ratios, and low earnings and cash holdings have been increasing their debt loads the most. historically, high leverage has been linked to elevated financial distress and retrenchment by businesses in economic downturns. regarding corporate bonds outstanding, recent years have witnessed little change in the relative shares of investment - grade bonds and high - yield bonds. credit quality has deteriorated within the investment - grade segment, where the share of bonds rated at the lowest investment - grade level has reached near - record levels. as of mid - 2019, just over half of investment - grade corporate bonds outstanding were at the lowest end of the investment - grade segment. in comparison, the share of high - yield bonds outstanding that are rated “ deep junk ” has stayed flat at about one - third over the past few years, well below the financial crisis peak of 50 percent. in an economic downturn, widespread downgrades of these low - rated investment - grade bonds to speculative - grade ratings could induce some investors to sell them rapidly — for instance, because lower - rated bonds have higher regulatory capital requirements or because bond funds have limits on the share of non - investment - grade bonds they hold. this concern may be higher now than in the past, since total assets under management in bond mutual funds have more than doubled in the past decade, and these funds now hold about one - tenth of the corporate bond market. the redemption behavior of investors in these funds during a market correction is unclear. further down the credit quality ladder, there has been sizable growth in leveraged lending, accompanied by a notable deterioration in underwriting standards. net issuance of leveraged loans to risky borrowers grew rapidly last year and boosted leveraged loans outstanding to a level exceeding $ 1 trillion overall, although the pace of issuance has slowed more recently as the interest rate environment has shifted. while leveraged loans have traditionally had important investor protections, covenants for leveraged loans issued in the past few years have weakened dramatically, and they often include features that increase opacity and risk. a substantial share of the leveraged loans are packaged in collateralized loan obligations ( cl

##os ) whose issuance increased sharply in 2018 and has since moderated somewhat. many large banks originate leveraged loans with an intent to distribute, often to clos. while the direct exposures of the banking system in the form of loan portfolios and warehousing exposures can be monitored, there are also indirect exposures, including through bank investments in clos and credit lines, which bear vigilance. by contrast, nonbank exposures are harder for us to track. to date, the default rate on leveraged loans has been at the low end of its historical range, and corporate credit conditions have been favorable, with low interest expenses and low expected default rates. however, if spreads rise sharply or economic conditions deteriorate significantly, we could see downgrades, refinancing challenges, rising delinquencies and defaults, and losses to investors. recognizing that financial imbalances played a key role in each of the past three u. s. downturns, policy should seek to moderate financial vulnerabilities when they are likely to materially exacerbate an economic downturn, leading to deeper declines in output and higher levels of unemployment. both economic theory and econometric evidence point to the risk that excesses in corporate debt markets could amplify adverse shocks and contribute to job losses. overindebted businesses may face payment strains when earnings fall unexpectedly, and they may respond by pulling back on employment and investment. the slowdown in activity lowers investor demand for risky assets, thereby raising spreads and depressing valuations. as business losses accumulate, and delinquencies and defaults rise, banks are less willing or able to lend. this dynamic feeds on itself, potentially amplifying downside risks into more serious financial stresses or a downturn. 3 / 4 bis central bankers'speeches recognizing this feedback loop between financial imbalances and the macroeconomy, in addition to strong through - the - cycle regulatory requirements, our toolkit includes a countercyclical capital buffer ( ccyb ). the ccyb is intended to require the nation ’ s largest banks to build capital when conditions are favorable to sustain resilience for times when there is elevated risk of above - normal losses, which often follows periods of rapid asset price appreciation or credit growth. ccyb requirements are intended to lean against rising risks at a time when the degree of monetary tightening needed to achieve the same goal could be inconsistent supporting