Median interest coverage ratios — a company's earnings measured against its interest bill — are roughly 6x for U.S. dollar investment grade issuers and roughly 3x for high yield issuers, down from their post-pandemic highs and, PIMCO said, still robust.
The worry since global yields backed up in late February has been that companies which borrowed at very low rates in 2020 and 2021 cannot afford to refinance that debt now. PIMCO's answer is that for the market as a whole the difference between today's yields and the coupons companies already pay is negligible, and that the strain is concentrated in one rating category.
"We estimate that current face-value weighted coupons for bonds maturing in 2027 and 2028 could double from current levels, if these issuers refinanced their maturing bonds at today's index yields."
The episode is a reading of PIMCO's weekly credit publication, The Credit Market Lens, which the firm publishes under the byline of Lotfi Karoui, a managing director and multi-asset credit strategist who was Goldman Sachs's chief credit strategist until he joined PIMCO in 2026.
I listened to the full episode so you can skip it.
Here are the 6 takeaways that matter.
👤 Speaker: an unnamed narrator reading PIMCO's weekly credit note aloud; the episode has no host, no guest and no discussion
📰 Published: 1 September 2026 on the PIMCO Pod feed · the written version was published 31 August 2026
🟢 Spotify | 🟣 Apple Podcasts | 🔗 Show notes | ⏱️ 6 min
Key Takeaways
Most U.S. corporate borrowers can absorb what refinancing now costs them Median interest coverage is roughly 6x in investment grade and 3x in high yield, down from the post-COVID highs and not back to a level PIMCO treats as a problem
At the index level, today's yields are barely above the coupons companies already pay
Investment grade issuers face bigger coupon increases than BB rated borrowers, not smaller High yield firms borrow for shorter terms, so most of them have already refinanced at higher rates
CCC rated issuers are the exception, and their coupons could double The estimate compares bonds maturing in 2027 and 2028 with the current index yield for that rating
Coverage ratios describe the past, so the note works forward from market prices instead
1. The refinancing question
The episode opens on the debate that the rise in global yields since late February set off in the credit market: whether companies that borrowed cheaply in the pandemic years can still service that debt once they refinance it. PIMCO's answer is that for most issuers they can.
The framing starts in the government bond market. PIMCO said the U.S. Treasury announced an expansion of its buyback program as U.S. borrowing costs rose, and that credit investors began asking the same question about corporate borrowers' capacity to service debt through refinancing
PIMCO's own position is that the risk is limited for most of the market. "We see limited debt servicing risk for most corporate issuers."
The debt in question was built when money was cheap. "Many companies used the historically low-rate environment of 2020 and 2021 to re-lever their balance sheets at very low all-in funding costs." Those larger debt loads were manageable while the coupons on them were low, and borrowers have spent the past few years refinancing that debt at higher yields
The conclusion PIMCO puts at the top is that the pain is concentrated rather than general. "These higher funding costs, combined with mounting late-cycle headwinds, could challenge firms with already weak balance sheets."
2. Coverage is still 6x and 3x
Interest coverage has normalized from its post-pandemic peak rather than collapsed. "For example, median interest coverage ratios for U.S. dollar investment grade and high yield issuers, despite coming down from their post-COVID highs, are still roughly 6x and 3x, respectively."
The measure has a known weakness, and PIMCO named it rather than leaving it to the listener. "Of course, given that interest coverage ratios are based on accounting data, they are backward looking." A ratio built from reported earnings and reported interest costs says what a company has already paid, not what it will pay on debt it has yet to refinance
That is why the rest of the episode works forward from market prices. The real uncertainty, PIMCO said, is how large the marginal costs might be to refinance maturing bonds in the future
3. The index gap is negligible
The method is a comparison, not a forecast: PIMCO measured the difference between the current index yield and the face-value weighted average coupons of the Bloomberg USD investment grade and high yield indices, using current market prices The firm was explicit that this is an approximation, because it is difficult to assess exactly how firms will optimize their capital structures on a forward basis
Across each index as a whole, refinancing at today's yields costs the average borrower almost nothing extra. "The clear takeaway is that the index-level difference is negligible."
4. Investment grade jumps more
To get from the index average to individual borrowers, PIMCO calculated the face-weighted coupons on index-eligible bonds maturing in 2027 and 2028, then compared them with the current yield for each rating category. The result runs against the intuition that weaker borrowers get hurt first.
Investment grade issuers with bonds maturing in 2027 and 2028 face larger average coupon increases than their BB rated peers. "This may seem unintuitive, but the underlying reason is mechanical."
The mechanism is maturity, not credit quality. High yield firms generally issue at shorter maturity profiles than investment grade issuers, whose investor base is far more comfortable with maturities across the entire curve, including long-dated bonds A bond sold for three years has already come back to the market once in this rate environment; a bond sold for ten years has not
5. High yield already repriced
Most high yield borrowers have taken the higher-rate hit already. "Therefore, given that we are six years past the July 2020 trough in U.S. Treasury five-year yields, most high yield issuers have already had to refinance at higher market interest rates."
Investment grade borrowers are the ones with the repricing still ahead of them. PIMCO said investment grade issuers holding longer-dated bonds that mature in 2027 and 2028 have not yet refinanced them in the current higher rate environment
6. CCC coupons could double
One rating category is under real pressure, and PIMCO named it directly. "There is one pocket of the market, however, where pressures are more acute: CCC rated issuers."
The size of the jump is what separates them from the rest of the market. "We estimate that current face-value weighted coupons for bonds maturing in 2027 and 2028 could double from current levels, if these issuers refinanced their maturing bonds at today's index yields."
The conclusion carries a condition rather than a prediction. If growth continues to slow and late-cycle headwinds create a further drag on earnings growth, PIMCO said, those refinancing costs become an acute pain point for CCC firms given their weaker balance sheets
Bonus Insights
The audio refers to charts a listener cannot see. The narration says "Interestingly, these figures show" the investment grade result, and the four figures behind the argument sit in the written version rather than in the episode
PIMCO framed the whole exercise as an approximation of a decision companies have not made yet, which is a narrower claim than a call on defaults: the firm compared what borrowers pay now with what the index yields now, and said the forward path depends on choices about capital structure it cannot observe
PIMCO's bottom line is that higher yields are a rating-by-rating problem rather than a market-wide one: the average U.S. corporate borrower would refinance at close to the coupon it already pays, and the strain sits with CCC rated issuers whose coupons could double at today's index yields.
Products, Companies & Tools Mentioned
U.S. Treasury (Expanded its buyback program as U.S. borrowing costs rose — the government-market event PIMCO used to frame the corporate refinancing question)
Bloomberg USD investment grade and high yield indices (The two bond indices whose face-value weighted average coupons PIMCO compared with current index yields to size the refinancing gap)
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