A sharp sell-off in US government bonds is sending borrowing costs soaring across corporate America, with companies scrambling to revise their financing strategies. Borrowing costs for the lowest-rated companies hit 17% this month, the highest since May 2020, as Treasury yields climb to multiyear highs and investors demand greater compensation for risk. The risk premium for triple C or lower-rated firms has jumped to 12 percentage points, the widest since 2022.
Companies with floating-rate loans and those facing near-term debt refinancing are particularly vulnerable, analysts say. The yield on the 10-year Treasury note reached its highest level since 2002 last week, underscoring mounting pressure on credit markets. James Reilly, senior markets economist at Capital Economics, noted that investors are increasingly requiring more compensation for corporate credit exposure.
Bank of America has slashed its forecast for investment-grade debt issuance this month to $110bn from $160bn. Paramount Skydance’s recent $52bn bond sale highlighted investor caution, with demand skewed toward shorter maturities. James Carter, co-head of fixed income at W1M, observed that some deals are being pulled or delayed as investors grow more selective. Many firms now favor shorter-duration debt to avoid locking in elevated rates.
McCormick is reassessing its debt strategy for its planned merger with Unilever’s foods unit, citing volatile market conditions. While AI-driven investment-grade issuers have largely remained insulated, a continued rise in yields could extend pressure across the broader credit market, especially as companies face refinancing challenges.
Source: Financial Times Companies · Summarized by HeadlinesBriefing