Corporate Debt Stress Trending Higher
(18 July 2023 - United Kingdom) Rising credit downgrades are compounding corporate debt fears as elevated borrowing costs begin to bite.
S&P Global anticipates default rates for US and European sub-investment grade corporates to jump to 4.25 percent and 3.6 percent respectively by Q1 2024, from 2.5 percent and 2.8 percent. Failing to pay higher interest costs or to refinance maturing debt are among the main reasons companies default.
"Corporate credit spreads are still extremely tight and are not reflecting the risks that are out there. On aggregate, things don't look dreadful. But it's not the aggregate you worry about, it's the marginal players coming through that now are having to pay massively more to borrow” stated Zurich Insurance Group Chief Market Strategist, Guy Miller.
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