Bond Maturity Walls Are Eroding as Money Managers Seek Yield

The looming concern over a potential surge in debt maturities within the global junk bond market appears to be easing, with the market experiencing a significant reduction in upcoming debt repayments in 2024—the most substantial decline in at least a decade.

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Since the beginning of 2024, corporations have repaid just over $170 billion in high-yield bonds scheduled to mature within the next two years, according to Bloomberg data. This figure surpasses the total amount repaid throughout 2021, a year marked by a peak in repayments due to historically low financing costs.

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The softening of the so-called "maturity wall"—a term used to describe a large volume of debt maturing at once—has lessened fears of a potential wave of defaults. Riskier borrowers are managing to refinance their debt, albeit at higher interest rates, dispelling concerns that these companies would be burdened with unsustainable debt costs that could lead to bankruptcies, job losses, and broader economic repercussions. Instead, investors are eager to lock in yields ahead of expected interest rate cuts, which has driven demand and kept spreads low.

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"The maturity wall is less of a wall now, perhaps more like a fence," remarked George Curtis, a portfolio manager at TwentyFour Asset Management. "The market is in a relatively stable position. Macroeconomic conditions have been steadier, and the high-yield market has experienced solid inflows."

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Typically, companies aim to refinance their maturing debt about 18 months before it comes due, ensuring they avoid any sudden disruptions in the new issue markets that could derail their plans at the last minute.

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This year, companies have benefited from strong investor demand for the debt of riskier issuers. Leveraged loan funds saw $11 billion in inflows through August 7, according to LSEG Lipper data. Additionally, high-yield notes had net inflows of approximately $680 million in the week ending August 21.

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These trends have contributed to making 2024 the busiest year for issuing new corporate high-yield bonds since the pandemic's period of easy money. So far, $357 billion in high-yield bonds have been sold this year. At the same time, the issuance of U.S. leveraged loans is progressing at a record pace, as per Bloomberg data. Combined, these factors have pushed the maturity wall further out, extending it towards the end of the decade.

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Private equity firm EQT AB is among those capitalizing on the strong demand from investors to refinance the debt of companies they own. "Over the past 12 months, we have executed more than 20 maturity extensions across the portfolio," said Olof Svensson, EQT's head of shareholder and bondholder relations, during the company's most recent earnings call.

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Another key factor supporting borrowers is the increased appetite from the $1.7 trillion private credit market, which has provided more refinancing options for companies.

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"The resurgence of the high-yield and leveraged loan primary markets is significant, but the ongoing bid from private credit has also played a crucial role," noted Marco Stoeckle, head of credit strategy at Commerzbank AG.

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However, the sudden spike in volatility in early August serves as a stark reminder of the credit markets' vulnerability to growth scares. The cost of insuring a basket of North American junk debt against default surged to its highest level of the year before stabilizing.

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Nonetheless, central banks are expected to begin a cycle of rate cuts, with traders predicting close to four 25-basis-point reductions by the Federal Reserve by year-end.

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"Given the improved momentum in interest rates, the funding outlook is not as toxic as it was during much of 2022 and 2023," added Stoeckle from Commerzbank.

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