El-Erian Warns of ‘Massive’ Corporate Refinancing Next Year

(Bloomberg) — Mohamed El-Erian is warning that a swath of corporations will be hurt by higher interest rates when they have to refinance next year.

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“If you look at high yield, if you look at commercial real estate, there’s massive refinancing needs next year. Massive,” he said on Bloomberg Television Friday. “So that’s the point of pain which starts to happen.”

“There are things that have to be refinanced in this economy that cannot be refinanced in an orderly fashion at these rates,” according to the chief economic adviser at Allianz SE and Bloomberg Opinion columnist.

This underscores why the stakes are so high for understanding how much longer the Federal Reserve will keep interest rates at elevated levels, he added. And while refinancing for corporations will spark pain next year, consumers locked into multi-decade long mortgages won’t face this issue for some time.

El-Erian isn’t the only one warning that the US economy is just beginning to feel the effects of the Fed’s aggressive monetary policy tightening. Apollo’s Torsten Slok said the impact of rate hikes is beginning to ripple through credit markets, with delinquency rates on credit cards rising. Fidelity International warned last month that debt refinancing in 2024 will spark a US recession.

The US junk bond market faces a looming wall of debt coming due over the next few years with $41 billion maturing in 2024 and another $113 billion the following year, Bloomberg compiled data show.

Read more: A $500 Billion Corporate-Debt Storm Builds Over Global Economy

“Now, some people will tell you there’s lots of distressed credit funds with lots of money waiting to come in,” El-Erian said. “We’re going to see a game of chicken between the two.”

In other comments, the economist said that the UAW strike is “here to stay” and that economic data is still going to surprise to the upside in the US.

–With assistance from Dan Wilchins.

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