Fixed Income Insights
Strategic Forum Series
21 December 2023
In this edition
This publication captures summarises the key findings of our quarterly Strategic Forum. Our goal is to provide valuable insights on the latest market and macroeconomic developments.
This quarter, the publication discusses:- Are US household and corporate balance sheets a determining source of vulnerability for the US economy?
- Will refinancing the ‘COVID Maturity Wall’ pose a threat to global credit markets?
Are US household and corporate balance sheets a determining source of vulnerability for the US economy?
- Higher interest rates have raised questions as to whether household and business debt is sustainable or whether the strength of the asset side of balance sheets can mitigate the impact of higher interest payments.
- Balance sheet resilience is not evenly distributed across either household or business sectors, and it is important to accept that it is likely to be the fate of the marginal business and consumer which will determine whether the US enters recession.
- Our analysis indicates that balance sheets are not unusually stretched and should, therefore, not be the source of significant financial stress, but that the interest rate shock is creating vulnerabilities in some areas.
Will refinancing the ‘COVID Maturity Wall’ pose a threat to global credit markets?
- Opportunistic funding at low rates during and just after the pandemic was a prudent step at the time, but it has created a ‘maturity wall’ in 2024 and 2025 which could create refinancing difficulties at the higher rates now prevailing.
- We do not believe that there will be a widespread problem, but there are likely to be pockets of pressure which may pose risks to certain markets.