Manageable maturities

The anxiety caused by soaring interest rates has many edgy investors scanning the horizon for signs of deteriorating market conditions. Enter the bond maturity crisis—at least the perception one is imminent. It’s a massive wall of worry that the corporate refinancing needs are larger and more problematic than ever before. Eye-popping numbers lead to alarming headlines. But while it’s concerning, the situation is not as dire as advertised. 

Companies issue debt of varying maturities. Investment-grade bonds average 9-10 years, high-yield around eight years and leveraged loans a little shorter. Management teams tend to address a pending maturity a year or two in advance, but the timing varies with market conditions and interest rates. So, it’s no surprise that these days an issuer with a low fixed-rate coupon has incentive to wait while one with a floating-rate coupon is motivated to address it soon. 

But the real concern is the sheer size of the pile of debt coming due over the next few years:

• Investment-grade bonds About $745 billion of high-quality corporate securities will mature over the course of 2024, with another $890 billion in 2025 and $1.03 trillion in 2026 That’s roughly 10%, 12% and 14%, respectively, of the current total market size of $7.48 trillion as estimated by Barclays.
• High-yield bonds Around $47 billion of riskier debt will mature in 2024, $124 billion in 2025 and $194 billion in 2026. That’s 3.2%, 8.4% and 13.2% of the total par value of the JP Morgan index of $1.5 trillion. Over the 3-year forward period, 25% of the universe that matures.
• Leveraged loans About $32 billion will mature in 2024, $155 billion in 2025 and $266 billion in 2026, or 2%, 9% and 16% of this $1.7 trillion market, as calculated by JP Morgan. 

Adding those up would seem to justify the dread and the alarm. But each category has a counterbalancing element. 

Investment-grade companies tend to have cash on the balance sheet and entered the Federal Reserve inflation-fighting campaign with fairly low interest expense and an average coupon around 3%. The surprising resilience of the U.S. economy during the tightening cycle suggests high-quality businesses will manage the bumpy road to refinancing well enough.     

Considering the high-yield market has roughly an 8-year tenor—about 12.5% a year—the 25% stack of bonds with near-term maturities is not as unwieldy as it would seem, and some issuers have been reducing it this year. As of October, maturing debt has declined by $24 billion for bonds originally coming due 2024, $37 billion for 2025 and $14 billion for 2026.  This behavior is slowing as interest rates keep climbing. But the less debt to refinance the better. Another element to consider is that over the last decade, high-yield bonds have trended up in quality. 

It’s a similar story for leveraged loans. As they tend to have floating rates, the tightening cycle has motivated issuers to address their capital stack. Year-to-date through October, bonds maturing in 2024 have declined by $67 billion, in 2025 by $102 billion and in 2026 by $31 billion. Perhaps more concerning is that the leveraged loan credit market has trended down in quality recently and defaults are increasing.

The surge in rates amplifies the difference between well and poorly managed companies. As always, the former will have better access to capital. But the bulk of the market will move forward with refinancing, and the maturity-wall concerns likely will abate.