(Bloomberg) — Mohamed El-Erian warns that many corporations will be hurt by higher interest rates when they have to refinance next year.
Most read from Bloomberg
“If you look at high yield, if you look at commercial real estate, there are big improvement needs next year. Huge,” he said on Bloomberg Television Friday. “So that’s the point where the pain starts to happen.”
“There are things that need to be refinanced in this economy that cannot be refinanced systematically at these rates,” said chief economic adviser at Allianz SE and Bloomberg Opinion columnist.
This underscores why the stakes are so high for how long the Federal Reserve will keep interest rates high. And while refinancing for corporations will cause pain next year, consumers locked into decades-long mortgages won’t face this issue for some time.
El-Erian is not alone in warning that the US economy is beginning to feel the consequences of the Fed’s tightening monetary policy. Apollo’s Thorsten Slock said the impact of the rate hikes is beginning to tighten in credit markets as delinquencies on credit cards rise. Last month, Fidelity International He warned that by 2024, debt reform would lead to a US recession.
The U.S. junk bond market faces a potential wall of debt, rising to $41 billion by 2024 and another $113 billion in the next few years, according to data compiled by Bloomberg.
Read more: $500 billion corporate-debt wave builds on global economy
“Now, some people will tell you that there are a lot of distressed loan funds with a lot of money,” El-Erian said. “We’ll see a game of chicken between the two.”
In other comments, the economist said the UAW strike was “here to stay” and economic data still surprised the turnaround in America.
– With help from Dan Wilchins.
Most read from Bloomberg Business Week
©2023 Bloomberg LP
