What Changed?
After a decade of ultra-low rates, U.S. companies are facing the consequences of the “cheap money” era. Trillions in corporate bonds and loans issued between 2015 and 2021 are coming due — and refinancing them now costs two to three times more.
According to the OECD, “borrowing costs have more than doubled since 2021, and look set to rise further still.” That means refinancing isn’t just more expensive — it’s actively eroding profit margins and limiting corporate flexibility.
As of October 2025, the effective federal funds rate sits at 4.09%, up from 0.08% three years ago. High-yield borrowers are particularly exposed, with roughly $1.5 trillion in sub-investment-grade debt maturing by the end of 2026.
While BlackRock’s credit strategists argue the “maturity wall” may not trigger a wave of defaults in the next 12 months, the longer-term pressure on corporate earnings is unmistakable.
The Numbers
Corporate Debt Maturing Globally: $3.02 trillion by 2028 — S&P Global Market Intelligence, Oct 2025
Speculative-Grade Maturities: ≈ $1 trillion — OECD, 2025 Outlook
U.S. High-Yield Market: $1.5 trillion due by end-2026 — Bloomberg, Oct 2025
Effective Fed Funds Rate: 4.09% (vs. 0.08% in 2021) — Federal Reserve, Oct 2025
Average Corporate Borrowing Cost: 5.6% (vs. 2.4% in 2020) — Moody’s Analytics, Q3 2025
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Why It Matters
This isn’t just a debt story — it’s an earnings story.
When debt issued at 2% rolls over at 5% or 6%, interest expenses surge, cutting into net income, free cash flow, and EPS growth. Every dollar redirected toward debt servicing is one less for dividends, buybacks, or reinvestment.
Valuation risk: Equity multiples built during the low-rate era are colliding with higher capital costs. If EPS growth weakens into 2026–27, valuation compression could follow.
Sector exposure:
Highly leveraged industries (real estate, telecoms, and industrials) face the steepest refinancing risk.
Firms with strong balance sheets, pricing power, and low-duration debt may emerge as relative winners.
Market sentiment: Rising credit spreads and cautious bank lending could tighten liquidity further, raising the risk of downgrades or selective defaults — especially in speculative-grade markets.
Takeaway
The real test for 2026 isn’t whether companies can refinance — it’s what they’ll sacrifice to do it.
Higher borrowing costs are quietly eating into profits, dividends, and valuations. The “cheap debt” era may be over, but its aftereffects are just beginning to show up in corporate earnings and investor returns.
— Lauren Brown
Editor, American Ledger