Speculative-Grade Maturities: Refinancing Risks and Systemic Implications
As we move beyond 2024, the financial markets are facing a significant and mounting challenge: the sharp rise in speculative-grade maturities. These speculative-grade bonds and loans, often issued by companies with weaker credit profiles, are slated to mature in increasingly larger volumes, particularly between 2026–2028. This situation presents a refinancing challenge for the companies involved and a potential systemic risk for the financial markets as a whole.
Companies may struggle to refinance their maturing debt, particularly if interest rates rise or if market liquidity dries up. In such scenarios, these companies might be forced to pay significantly higher rates to roll over their debt or face default. A wave of corporate defaults could have cascading effects throughout the financial system, leading to a tightening of credit conditions and increased market volatility.
The concentration of speculative-grade maturities set to rise sharply by 2028, as shown in Figure 7 (S&P Global), underscores a looming systemic risk. According to the chart, speculative-grade loans and bonds rated ‘B-’ or lower will grow significantly, rising from $58.4 billion in 2024 to a staggering $313 billion in 2028. This concentration of maturing high-risk debt could pose significant challenges to financial markets, particularly if several companies are unable to refinance or roll over their debt at the same time.
The systemic risk here stems from the interconnected nature of financial markets. If multiple companies default simultaneously, especially within sectors heavily exposed to this speculative-grade debt, the financial repercussions could extend well beyond the individual companies involved. A wave of defaults could trigger a broader tightening of credit conditions, leading to a liquidity squeeze and exacerbating financial instability across markets reliant on high-yield debt.
Figure 7 further highlights that loans make up the majority of this growing maturity wall, further heightening the risk. Should credit markets become strained, particularly in 2026–2028, it could potentially destabilize sectors with high concentrations of speculative-grade debt. The interconnectedness of the global financial system magnifies this risk, as shocks within these sectors could trigger broader market-wide effects, potentially culminating in a financial crisis.
Figure 7: S&P Global Nonfinancial Corporate Debt
Warning signs of systemic risk are already appearing in the banking sector. Figure 8 illustrates unrealized losses on investment securities, which have grown significantly within the U.S. banking system, similar to what occurred during the SVB collapse. The accumulation of these unrealized losses reflects decreased flexibility for banks to absorb potential financial shocks, suggesting that further strain could materialize if conditions worsen.
Figure 8: Unrealized gains (Losses) on Investment Securities
Furthermore, liquidity concentration is becoming increasingly pronounced. A small group of companies is capturing a disproportionately large share of market liquidity. This extreme market concentration illustrates a skewed market structure, potentially heightening systemic risks in the case of future market corrections or liquidity shortages.
This broader view of speculative-grade debt and the interconnectedness of financial markets underscores the importance of monitoring these maturities closely. The risks of refinancing, coupled with liquidity imbalances and market concentration, suggest that the global financial system remains exposed to potential volatility.
About the Author
Robert De Jaray is the VP, Head of Sales & Trading at @Bitbuy and @Coinsquare, where his strategic insight and leadership have defined the trajectory of both platforms within the competitive crypto space. With a distinguished career as a broker and commodity trader in New York, Rob returned to Canada to master the intricacies of precious metals trading before immersing himself in the world of cryptocurrency in 2016. His personal involvement in the crypto markets paved the way for his professional transition in 2019, when he joined Coinsquare. Since then, Rob has been a pivotal force, driving innovative sales and trading strategies that continue to shape the firm’s broker-dealer success.