Corporate Bond Rush Is Breaking Down a Maturity Wall That Everyone Feared

Less than a year ago, investors were gaming out what would happen when billions of dollars of bonds reached maturity dates, leaving borrowers potentially crushed by costly refinancings. Now, those fears are fizzling away, with companies rushing to sell debt to a buoyant market.

The implied cost of refinancing junk-rated bonds is now at its lowest since May 2022, based on global corporate bond indexes compiled by Bloomberg. For investment-grade firms, it’s the cheapest since summer 2022, when a series of central bank interest rate hikes was just beginning. Those falling costs have spurred a wave of corporate bond sales and, in turn, pushed back the so-called maturity wall of debt coming due.

The turnaround has come as rate cuts are built into forecasts for the summer, lowering underlying borrowing costs and creating a risk-on mood among investors — many of whom have piles of cash to put to work. And companies are seizing on the ebullience while it lasts, with the supply of corporate bonds globally now running almost 30% ahead of last year and — by a narrow margin — the fastest pace in more than a decade, based on data compiled by Bloomberg.

Corporate Refinancing Costs Have Been Falling

“The ‘refinancing penalty’ is still high, but significantly lower than it was last year. In the short term that makes supply more likely,” said Viktor Hjort, global head of credit strategy and desk analysts at BNP Paribas. Refinancing rates are no longer at the level that would have destabilized businesses, he said.

By Bloomberg’s analysis, a company selling junk-rated bonds to replace existing ones would now add 177 basis points to its annual interest bill, compared with 463 basis points in October 2022. That’s calculated by looking at the difference between the coupon companies pay on existing debt and the yield, which is used as a proxy for the cost of tapping the new issue market. It’s a similar picture for investment grade debt.