"Maturity walls” pose Low default risks for high yield | Insight Investment

Five years from the start of the pandemic, some are concerned that a wave of corporates are set to refinance at higher rates, threatening disruption. However, our analysis indicates such risks are muted.

Is the post-pandemic refinancing wave about to hit?

During the height of the pandemic, many corporates refinanced issuer debt and extended maturities at record-low interest rates. A wave of “fallen angels” (investment grade bonds downgraded to high yield) also added to supply (Figure 1). Five years on, some are concerned much of this is coming due for refinance within the next two years. However, the data does not indicate this is a risk.

Figure 1: Is the wealth of pandemic issuance and high yield downgrades about to lead to a refinancing wave?¹

The maturity wall looks more like a gentle “staircase”

However, the maturity calendar does not indicate an avalanche of refinancing over the next two years. Less than $100bn of high yield debt is set to mature by the end of 2026, or $125bn over the next 24 months: 80% of it is rated BB or above (Figure 2).

Figure 2: The maturity staircase looks relatively gentle over the coming years²

But what happened to all the debt raised in 2020 and 2021? A par-weighted 50% of those issuers have already been back to the primary high yield market and a further ~10% have even been upgraded to investment grade. Meanwhile, ~80% of the par-weighted fallen angels downgraded during 2020 or 2021 have since transitioned back to investment grade.

Even considering recent tariff-related volatility, the proportion of high yield debt due for maturity within two years is not far off historical norms. The bonds most at risk of default, i.e. those with CCC ratings or trading at distressed levels (credit spreads of over 1000bp), are in line with historical average levels (Figure 3).

Figure 3: The ratio of distressed and CCC US high yield bonds remains contained³

The high yield market has remained open to CCC borrowers so far in 2025, with $1.7bn worth of deals issued³. As a last resort, issuers have other options, such as refinancing in the loan or private credit markets. We find many issuers trading at distressed levels that are most at risk are actively working with their creditors in a cooperative group on refinancing options. 

The trade war may pose more risks than maturity schedules

While we do not believe a maturity wall poses meaningful near-term risks, the global trade war will likely impose higher costs as well as potential demand challenges given challenged consumer confidence. At present, it is too early to fully assess the impact.

Nonetheless, we believe corporates are starting from a position of relative fundamental strength. The 12-month trailing default rate remains low at 1.1%, with only one default in Q1 2025⁴. Earnings and interest coverage ratios also look compelling to us. Longer-term structural shifts have reduced default risk (such as a long-term rise in average high yield credit ratings and increasing leveraged buy-out activity in private markets).

Further, the mid-sized nature of many high yield issuers means they often operate in close geographical proximity to their customer base even when operating internationally.

Conclusion – a systematic approach may help diversify away default risks

We expect defaults will likely tick up to more historically normal levels. But we believe global trade, rather than maturity walls, may be the main driver.

We believe full diversification across most high yield market segments, achievable with the right systematic strategy, can potentially offer a high degree of protection.

In our view, such a strategy may leave investors well placed to capture what may be a compelling entry point in high yield markets.