Bondholders feel the strain

Buoyed by healthy balance sheets and cash reserves, US companies are preparing to reward shareholders with increased dividends and share buybacks. Should European bondholders be steeling themselves to expect a similar trend? Saskia Scholtes reports

Corporate bond investors have been riding high for the past few years. Credit quality has steadily improved, default rates have fallen dramatically and once-neglected balance sheets have been patched up. Rating downgrades still outpaced upgrades on US companies in 2004’s second quarter but only by the narrowest of margins, and through a combination of cost cuts and profitability gains, US companies’ cash reserves have seen remarkable growth.

Unfortunately for bondholders, the corporate credit