Corporate Borrowing Costs Rise, But Most Firms Can Absorb It

A Global Rise in Yields Meets a Corporate Reckoning

Borrowing costs are climbing almost everywhere, and the question preoccupying credit investors is no longer whether yields will stay elevated but whether companies can actually afford to refinance at them. In the United States, the United Kingdom, Japan and beyond, government bond yields have pushed higher in recent months, lifting the base rate that underpins corporate lending costs worldwide 2345. The UK saw long-term borrowing costs hit their highest level since 1998 ahead of its October Budget, adding political pressure on officials including Andy Burnham and John Healey as they weigh how to fund spending commitments 36. Japan's borrowing costs touched a 30-year high as the yen slid toward 160 per dollar, prompting talk of possible intervention 5. In the U.S., a supply glut in the bond market has been cited as a factor pushing yields upward, with knock-on effects for mortgages, auto loans and student debt 4. Against this backdrop, the U.S. Treasury moved to shore up liquidity in longer-dated securities, announcing on August 19, 2026 that it would at least double the size of its buyback operations in the 10-to-20-year and 20-to-30-year sectors, from a $2 billion cap to at least $4 billion per operation, beginning September 9 11. That step targets market functioning rather than corporate finances directly, but it underscores how central higher benchmark yields have become to the broader financial conversation.

PIMCO's Verdict: Digestible, With One Exception

Into this environment, asset manager PIMCO published its Credit Market Lens on August 31, 2026, offering a more reassuring read specifically on U.S. corporate credit 17. The core finding is that most U.S. investment-grade and high-yield borrowers retain ample capacity to absorb higher refinancing costs, even though a global backup in yields since late February has revived worries about corporate debt-servicing strain 17. PIMCO's evidence rests on interest coverage ratios — a measure of how comfortably earnings cover interest payments — which, despite declining from their post-pandemic peaks, remain healthy: roughly 6x for investment-grade issuers and about 3x for high-yield issuers 17. At the index level, the firm also finds that the gap between current yields-to-worst and existing average coupons is minimal, suggesting that, in aggregate, refinancing does not imply a dramatic across-the-board jump in borrowing costs 17.

The exception, and the part of the analysis drawing the most attention, concerns CCC-rated issuers — the lowest tier of the high-yield universe. PIMCO estimates that if these companies refinanced bonds maturing in 2027 and 2028 at today's index yields, their coupons could effectively double 17. Combined with late-cycle pressures on earnings and already fragile balance sheets, that dynamic marks CCC borrowers as the segment most exposed to a genuine debt-servicing squeeze.

A Counterintuitive Wrinkle: Why Investment-Grade Looks Riskier Than BB

One of the more striking observations in PIMCO's analysis is that some investment-grade issuers with debt maturing in 2027 and 2028 face larger average coupon increases than their BB-rated high-yield peers 17. That seems to run against intuition, since investment-grade companies are generally considered safer credits. But PIMCO attributes this to mechanics rather than deteriorating credit quality: high-yield borrowers tend to issue debt with shorter maturities and have therefore already been forced to refinance much of their pandemic-era, ultra-cheap borrowing at higher prevailing rates in recent years 17. Investment-grade issuers, by contrast, enjoy access to a deeper pool of investors willing to hold long-dated paper, meaning a chunk of their outstanding debt issued when five-year Treasury yields were near historic lows has yet to come due. When it does, the jump from old coupon to new market yield could be sizable 17. In short, this is a story about timing, not a signal that BB credit has become safer than investment-grade credit.

The ECB's More Cautionary Lens

While PIMCO frames the overall picture as manageable, the European Central Bank's analysis of the same dynamics strikes a more guarded tone. The ECB separates the challenge into two distinct risks: rollover risk, or whether firms can access markets at all when debt matures, and repricing risk, or how much more expensive that debt becomes 8. Its numbers illustrate the scale involved — roughly $642 billion of U.S. corporate debt was slated to mature in the remainder of 2025, followed by $930 billion in 2026 and $860 billion in 2027 8. The ECB's simulations suggest that 85% of that maturing debt would need to be refinanced at higher rates than originally issued, with more than half facing an increase exceeding one percentage point and roughly a quarter facing an increase of more than two percentage points 8. The ECB warns that such repricing could weaken corporate fundamentals, elevate default risk and unsettle broader market sentiment, particularly since expected default frequencies among the riskiest issuers have already been climbing to levels not seen since the global financial crisis 8.

Schroders and the CFO's Playbook: Averages Hide the Damage

Other market analysis reinforces the idea that comfortable aggregate figures can mask meaningful pockets of stress. Schroders' research similarly finds healthy median interest coverage ratios and a generally well-distributed maturity schedule, but cautions that certain high-yield sectors — including transportation and leisure — combine weak coverage with heavy refinancing needs and significant floating-rate loan exposure, which transmits higher rates into borrowing costs almost immediately 9. Globally, the share of high-yield debt requiring refinancing within five years has climbed to about 54%, its highest level since at least 2006, though the U.S. dollar market looks less stretched than its European counterpart 9.

A CFO-focused guide to corporate debt strategy adds a practical dimension often missing from investor commentary: even when credit spreads look tight, the total cost of new debt still depends heavily on benchmark yields, fees and hedging costs 10. It cites OECD data showing that global companies borrowed a record $13.7 trillion through bonds and loans in 2025, pushing outstanding corporate debt to $59.5 trillion, with 24% of investment-grade and 31% of non-investment-grade debt due for refinancing within three years 10. Notably, half of outstanding investment-grade debt now carries a rate above 4% — the first time that threshold has been crossed since 2015 — meaning many firms are effectively trading up from unusually cheap legacy financing even when market access remains favorable 10. The guide urges finance teams to look beyond headline spreads and assess the full stack of funding costs, along with how well debt maturities match the economic life of the assets they finance 10.

The Bigger Picture

Taken together, the coverage points to a corporate credit landscape undergoing a gradual, uneven transition rather than a sudden crisis. Rising sovereign borrowing costs in the U.S., UK and Japan form the backdrop against which corporate refinancing is unfolding, and the U.S. Treasury's liquidity intervention shows policymakers are already responding to strains in the government bond market itself 234511. For most investment-grade and high-yield corporate borrowers, healthy interest coverage and relatively contained coupon increases suggest the transition should be absorbable 17. But the risk is far from evenly spread: CCC-rated companies, sectors reliant on floating-rate leveraged loans, and issuers with clustered near-term maturities face a materially tougher road, one that could intensify if economic growth slows just as refinancing costs bite 1789. The consensus across this research is less a story of imminent crisis than one of widening dispersion — comfortable on average, but increasingly punishing for the weakest borrowers.