US corporate debt defaults surge 176% as the Fed's war on inflation pushes more companies into financial distress

• Debt defaults by US companies surged 176% in the first eight months of 2023 from the year-earlier period, S&P data shows, as high interest rates push more businesses into financial distress.
• As many as 69 firms missed debt payments during the January-August stretch, up from 25 in the same period of 2022.

The steepest surge in US interest rates since the 1980s is pushing more businesses into financial distress.

As many as 69 American companies defaulted on debt payments during the first eight months of this year, marking a 176% increase from the same period of 2022, according to data from S&P Global Ratings.

August in particular saw 16 instances of nonpayment – the highest tally for that month since 2009, when the economy was still facing the aftermath of the global financial crisis.

The media and entertainment sector has been most affected by the credit squeeze this year, and saw January-August defaults surge sixfold from the year-earlier period to 24, according to S&P.

More and more American companies are struggling to meet their debt obligations after the Federal Reserve boosted benchmark borrowing costs by more than 500 basis points over the past six quarters to tame inflation.

Government bond yields, against which corporate debt rates are benchmarked, have surged in line with the Fed's rate increases. Ten-year Treasury yields have jumped about 340 basis points since the end of 2020.

US firms are barreling towards a giant wall of corporate debt that's about to mature over the next few years, Goldman Sachs strategists said in a note last month. The investment bank estimated that $790 billion of liabilities are set to mature in 2024, followed by $1.07 trillion in 2025.

Mounting debt-related stress in the corporate sector is also pushing more companies into bankruptcy.

More US companies collapsed during the six months through June than any other half-year period since 2010 as historically high interest rates heaped pressure on American businesses, according to data published by S&P Global Market Intelligence. First-half bankruptcies outstripped even the same period of 2020 – when the pandemic wreaked havoc on the economy.

Silicon Valley Bank, Bed Bath & Beyond, Lordstown Motors and Mediamath Holdings are some of the well-known names that went under this year.

The surge in US corporate failures likely embodies a greater economic risk that many in the market have accounted for, and could be presaging an event that dwarfs the 2008-2009 financial crisis, Stephanie Pomboy, the founder and president of the boutique research firm Macro Mavens, wrote in a post on X.