The much-feared maturity wall is proving to be less of a towering obstacle and more of a manageable hurdle. The global high-yield bond market has witnessed the sharpest decline in looming debt repayments this year compared to any point in the last decade.
According to Bloomberg data, companies have paid off just over $170 billion of their high-yield bonds since the start of 2024. This is already more than they had to repay for 2021, a year when financing costs peaked.
The erosion of the maturity wall—a term used in the market to describe a significant amount of debt coming due all at once—has eased fears of a potential wave of defaults. Risky borrowers are refinancing their debts at higher interest rates, reducing concerns about being burdened with unsustainable debt costs, which could lead to bankruptcies and layoffs with repercussions for the broader economy. Instead, investors looking to secure returns before expected interest rate cuts have increased demand, helping to maintain low spreads.
The market is doing quite well. The macroeconomic situation is more stable than one year ago, and the high-yield market has seen decent capital inflows.
Companies typically seek to refinance their maturing debt around 18 months before it is due to avoid a sudden shutdown of new issuance markets, which could derail their plans at the last minute.
They have relied on investors’ eagerness to buy debt from risky issuers, with leveraged loan funds attracting $11 billion in inflows this year up to 7th August, according to data from LSEG Lipper. They said high-yield bonds saw net inflows of around $680 million in the week ending 21st August.
This has helped make 2024 one of the busiest years for new high-yield corporate bond issues, with $357 billion raised since the days of easy money during the pandemic. Meanwhile, according to Bloomberg data, U.S. leveraged loan issuance is running at its fastest pace on record. These factors have pushed the maturity wall further towards the decade’s end.
Another factor working in borrowers’ favour is the appetite from the $1.7 trillion private credit market, which has given them more refinancing options.
The resurgence of primary markets for high-yield and leveraged loans is one thing, but private credit availability has already helped and continues to do so. Of course, the sudden surge in volatility in early August reminds us just how vulnerable credit markets are to growth fears. The cost of protecting a basket of North American high-yield debt against default hit its highest level this year before pulling back.
Yet, major central banks appear poised to embark on a cycle of rate cuts, with traders anticipating nearly four 25-basis-point reductions by the end of the year.
Given the improved rate dynamics, the funding outlook is less dire than during 2022 and 2023. The Federal Reserve’s much-anticipated pivot towards lowering interest rates next month creates a dilemma for one of the biggest beneficiaries of the high-rate era: private credit. While monetary easing will relieve heavily indebted borrowers, it could also undermine the returns of a sector that has boomed thanks to rising rates.
As credit markets rally anticipating lower interest rates, risky debt could disappoint. However, the interest rate landscape is not set yet. As the Fed mentioned, investors must remember that everything depends on data.