Maturity wall to ensure further refinancings, says Goldman Sachs

Goldman Sachs strategists estimate in their latest report that maturity extensions for $152 billion of debt will be necessary in order to take out the debt coming due between 2011 and 2014, and help reduce the size of the upcoming maturity wall.

Of the corporate universe covered by Goldman’s analysts, 93 companies have issued nearly $60 billion of debt in order to refinance $62 billion thus far this year. This has been made possible by the fact that the bond markets have been more than willing to absorb the new supply, and companies have been active to take advantage of the bond market to refinance bank debt.

According to calculations, around 40% of US corporate bond debt – around $2.13 trillion – will mature between 2010 and 2014. In Europe, around 61% – equivalent to approximately $2.82 trillion – of total outstanding corporate bond debt will mature during the same period.

As refinancing activity is expected to continue, strategists recommend going long risk in the short-dated part of the credit curve, or establishing steepener trades between the short end (one- to three-year) versus the long end (seven- to 10-year). The recommendation is made based on the observation that refinancing often lowers spreads while steepening curves as a result of CDS curve outperformance on the short-end.