OUTLOOK 2023 Less than 10% of outstanding debt needs to be refinanced before 2025 fig. 11AMOUNT OF INVESTMENT GRADE CORPORATE DEBT MATURING (BILLIONS) $700 $600 $500 $400 $300 time horizon greater than five years, $200 a full market core bond portfolio may make sense. Otherwise, shorter $100 maturity securities offer attractive yields as well. Bottom line, after the back-up in yields in 2022, there are $0 a number of attractive fixed income 2023 2026 2029 2032 2035 2038 2041 2044 2047 2050 2052+ opportunities again. Source: LPL Research, Bloomberg, 10/31/22 WHAT’S NEXT FOR CORPORATE CREDIT? years in particular, corporate [Fig. 11], only about 1% of existing Since Treasury yields are generally borrowers have increased the debt needs to be refinanced in used as the base rate for consumer amount of new debt issued seemingly 2023, and less than 10% needs to be and corporate borrowers, this year’s to prepare for the rising rate refinanced before 2025. So the need increase in Treasury yields pushed environment we’re currently facing. for companies to refinance existing many borrower’s borrowing costs to In fact, new corporate debt issuance debt at these higher levels seems to levels not seen in years. For corporate for investment grade companies hit be currently muted. borrowers, after years of borrowing at record highs in 2020 and 2021 when That said, if the Fed is able to keep ultra-low rates, the backup in yields over $3 trillion of new debt was rates at these elevated levels, and as we’ve seen this year has pushed issued. As such, corporate entities the need for corporate borrowers to corporate borrowing rates back above were able to term out debt by issuing access the capital markets increases, 6%, which is the highest levels since a lot of debt at longer maturities there’s no doubt that corporate 2009. Could higher borrowing costs and lower rates. Also, and notably, profitability will be negatively for corporates reduce profitability and because companies were able to impacted by higher interest expenses. potential growth opportunities? refinance existing debts over the last However, we don’t think it will happen Perhaps, but over the last two few years and push out maturities in the near term. 12