Closing the gap?

Sources: Bloomberg, Moody’s, and Wells Fargo Investment Institute. Quarterly data from January 1, 1986 to June 30, 2021. Q3 2021–Q2 2022 speculative grade default rate forecasts from Moody’s forecasts, as of September 30, 2021. 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 IG and HY debt remained elevated through the third quarter.
  • Default rates climbed during the height of the pandemic; however, they are now expected to decline due to higher corporate profits.
  • 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.