Closing the gap?

Sources: Bloomberg, Moody’s, and Wells Fargo Investment Institute. Quarterly data from January 1, 1986 to December 31, 2021. Q1 2022–Q4 2022 speculative grade default rate forecasts from Moody’s forecasts, as of March 31, 2022. The nonfinancial corporate debt data includes both High Yield (HY) and investment-grade (IG) corporate debt. GDP = gross domestic product.

Key Takeaways

  • Issuance for both investment-grade and high-yield debt remained elevated through the fourth quarter of 2021.
  • Default rates climbed during the height of the pandemic; however, they are now expected to remain subdued due to higher corporate profits and ample liquidity.
  • While we may see some near-term volatility, a relatively low-rate environment should be a long-term positive for credit-related sectors, allowing many issuers to refinance in order to extend maturities and lower interest expense.