U.S. High Yield: Beyond the Maturity Wall
The maturity wall facing U.S. high yield bond issuers is sizeable. But given the market’s composition today, the wall appears less daunting for issuers—and, for investors, it’s helping shape potentially compelling opportunities.
In the U.S. high yield bond market, issuers are facing a significant maturity wall, with around 20% of the market maturing within the next three years—and another 22% of the market maturing in the next three to four years. With interest rates remaining elevated, higher funding costs can make it challenging for issuers to refinance this large amount of debt, especially when financial conditions or fundamentals are stretched. This could potentially lead to an increase in distressed situations—and, in extreme cases, defaults.
While these concerns are real, they may be somewhat overblown and may also overshadow potential total return opportunities. Specifically, we believe there are a number of reasons that may help to minimize the potential for the worst-case outcomes.
1. A Higher-Quality Profile
The fundamental picture for high yield corporates remains healthy overall. In particular, many issuers have been strengthening their financial positions over the years—for instance, the leverage profile has been well-managed for the majority of U.S. issuers, with net leverage at 3.6x today.
Reflecting this strength is the U.S. high yield market’s credit quality, which is nearly the highest in the market’s history. BB issuers now comprise 58% of the U.S. market, compared to 49% a decade ago.
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