Corporate borrowers are coming to terms with the likelihood that Federal Reserve officials will keep interest rates in the US elevated for a protracted period of time, according to Wells Fargo & Co.
(Bloomberg) — Corporate borrowers are coming to terms with the likelihood that Federal Reserve officials will keep interest rates in the US elevated for a protracted period of time, according to Wells Fargo & Co.
Companies are finding ample appetite for new bond sales across both investment-grade and high-yield debt markets — and many executives are taking advantage of that to tap US debt markets, said Maureen O’Connor, global head of high-grade debt syndicate at the bank. That’s as some finance chiefs see signs that elevated borrowing costs are set to linger.
“You’re starting to see, around the edges, a little bit of acquiescing,” she said Friday on Bloomberg Television. Some borrowers are “willing to lean in and recognize that this higher-for-longer narrative is probably with us for some time.”
Issuance has been robust this month across both high-grade and junk debt markets, with more than $110 billion of bonds sold globally last week. That’s the busiest start to any September on record, according to data compiled by Bloomberg.
While the deluge of new debt may slow as Wall Street looks ahead to the Federal Reserve’s rate decision next week, it seems that few firms are holding their breath for substantially lower borrowing costs, according to O’Connor.
A key question — both in investor and corporate circles — is when exactly borrowing costs will peak, she said.
“Is now the right time to be levering up your balance sheet, refinancing debt, funding acquisitions, digging into capex at these elevated rate levels?” she said. “Or is this the rate environment we’re going to be in for some time?”
A resilient US economy is seen prompting the Fed to pencil in one more interest-rate hike this year and stay at the peak level next year for longer than previously expected, according to economists surveyed by Bloomberg.
“In terms of term-level interest rates, while we might see a little bit of relief, I don’t think anyone is forecasting a materially lower rate environment over the course of the next 12 months,” she said.
–With assistance from Sonali Basak.
(Updates with more context, detail throughout.)
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