{"id":42052,"date":"2023-07-29T16:21:51","date_gmt":"2023-07-29T20:21:51","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/how-higher-fed-rates-for-longer-could-squeeze-ability-of-big-companies-to-pay-interest-on-debt\/"},"modified":"2023-07-29T16:21:53","modified_gmt":"2023-07-29T20:21:53","slug":"how-higher-fed-rates-for-longer-could-squeeze-ability-of-big-companies-to-pay-interest-on-debt","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=42052","title":{"rendered":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt"},"content":{"rendered":"
\n

The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep interest rates higher for longer, according to BofA Global.<\/p>\n

Major corporations, like homeowners, embarked on a borrowing blitz during the pandemic when the Fed cut its policy rate to almost zero in a bid to thwart an economic calamity from unfolding.<\/p>\n

\n

That helped insulated many large corporations and households from the brunt of the Fed\u2019s rate hikes since March 2022, mainly because it put a fixed, lower cost on their existing debt.<\/p>\n

But if the central bank keeps its policy rate high for years to come as part of its inflation fight, it risks sinking the ability of many corporations to pay interest on their debts to some of the lowest levels since 2003 (see chart), according to BofA Global strategists.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

Specifically, the BofA team looked at estimated interest coverage ratios for corporations with investment-grade credit ratings should the Fed keep its policy rate elevated through the end of 2025. <\/p>\n

Higher coverage ratios imply companies will have an easier time paying interest on their outstanding debt.<\/p>\n

The analysis assumes rolling maturing debt at the current 5.5% yields of the ICE US Corporate Index, which would bring the coverage ratio to 8.7x by the end of 2025, down from 11.9x as of the first quarter of this year. It also assumes no change in debt or earnings.<\/p>\n

\u201cOf course, the impact on the coverage ratio will depend on how long rates remain high,\u201d the BofA team led by Yuri Seliger wrote, in a Tuesday client note.<\/p>\n

It\u2019s also worth noting that debt defaults by investment-grade companies have been fairly rare, although getting their credit-rating downgraded to speculative, or \u201cjunk,\u201d territory hasn\u2019t been uncommon.<\/p>\n

See<\/strong>: Ford moves closer to investment grade after Moody\u2019s upgrade, as its bonds see net buying <\/strong><\/p>\n

The Fed is widely expected to raise interest rates another 25 basis points to a range of 5.25%-5.5% on Wednesday.<\/p>\n

The 10-year Treasury yield
\n TMUBMUSD10Y,
\n 3.953%<\/bg-quote>,<\/span>
\n a benchmark for corporate borrowing, was at 3.89% on Wednesday, down from a high of nearly 4.1% in March, according to Dow Jones Market Data. <\/p>\n

Stocks were mostly lower ahead of the Fed\u2019s rate decision, with the Dow Jones Industrial Average
\n DJIA,
\n +0.50%<\/bg-quote>
\n struggling to extend its win streak to a 13th straight day and the S&P 500 index
\n SPX,
\n +0.99%<\/bg-quote>
\n and Nasdaq Composite Index
\n COMP,
\n +1.90%<\/bg-quote>
\n trading lower. <\/p>\n

Individuals often gain exposure to corporate bonds through bond funds and exchange-traded funds. The iShares iBoxx $ Investment Grade Corporate Bond ETF
\n LQD,
\n +0.66%<\/bg-quote>,<\/span>
\n the biggest investment-grade corporate bond ETF, was up 2.2% on the year through Wednesday, according to FactSet. <\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep interest rates higher for longer, according to BofA Global. Major corporations, like homeowners, embarked on a borrowing blitz during the pandemic when the Fed cut its policy […]<\/p>\n","protected":false},"author":1,"featured_media":42053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-42052","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nHow higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=42052\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ifintechworld.com\/?p=42052\" \/>\n<meta property=\"og:site_name\" content=\"iFintechWorld\" \/>\n<meta property=\"article:published_time\" content=\"2023-07-29T20:21:51+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-07-29T20:21:53+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1690662111_social.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ifintechworld.com\/?p=42052#article\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=42052\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\"},\"headline\":\"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt\",\"datePublished\":\"2023-07-29T20:21:51+00:00\",\"dateModified\":\"2023-07-29T20:21:53+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=42052\"},\"wordCount\":467,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"keywords\":[\"Featured\"],\"articleSection\":[\"Markets\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/ifintechworld.com\/?p=42052#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/ifintechworld.com\/?p=42052\",\"url\":\"https:\/\/ifintechworld.com\/?p=42052\",\"name\":\"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/#website\"},\"datePublished\":\"2023-07-29T20:21:51+00:00\",\"dateModified\":\"2023-07-29T20:21:53+00:00\",\"description\":\"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep\",\"breadcrumb\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=42052#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/ifintechworld.com\/?p=42052\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/ifintechworld.com\/?p=42052#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/ifintechworld.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/ifintechworld.com\/#website\",\"url\":\"https:\/\/ifintechworld.com\/\",\"name\":\"Repay Down\",\"description\":\"Latest Personal Finance News, Tips and Updates\",\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/ifintechworld.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/ifintechworld.com\/#organization\",\"name\":\"Repay Down\",\"url\":\"https:\/\/ifintechworld.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"width\":558,\"height\":90,\"caption\":\"Repay Down\"},\"image\":{\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/ifintechworld.com\"],\"url\":\"https:\/\/ifintechworld.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld","description":"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/ifintechworld.com\/?p=42052","og_locale":"en_US","og_type":"article","og_title":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld","og_description":"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep","og_url":"https:\/\/ifintechworld.com\/?p=42052","og_site_name":"iFintechWorld","article_published_time":"2023-07-29T20:21:51+00:00","article_modified_time":"2023-07-29T20:21:53+00:00","og_image":[{"width":1280,"height":640,"url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1690662111_social.jpeg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"2 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/ifintechworld.com\/?p=42052#article","isPartOf":{"@id":"https:\/\/ifintechworld.com\/?p=42052"},"author":{"name":"News Room","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61"},"headline":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt","datePublished":"2023-07-29T20:21:51+00:00","dateModified":"2023-07-29T20:21:53+00:00","mainEntityOfPage":{"@id":"https:\/\/ifintechworld.com\/?p=42052"},"wordCount":467,"commentCount":0,"publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"keywords":["Featured"],"articleSection":["Markets"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/ifintechworld.com\/?p=42052#respond"]}]},{"@type":"WebPage","@id":"https:\/\/ifintechworld.com\/?p=42052","url":"https:\/\/ifintechworld.com\/?p=42052","name":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt | iFintechWorld","isPartOf":{"@id":"https:\/\/ifintechworld.com\/#website"},"datePublished":"2023-07-29T20:21:51+00:00","dateModified":"2023-07-29T20:21:53+00:00","description":"The ability of big U.S. companies to pay interest on their debt could sink to the lowest level in two decades, if the Federal Reserve opts to keep","breadcrumb":{"@id":"https:\/\/ifintechworld.com\/?p=42052#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ifintechworld.com\/?p=42052"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/ifintechworld.com\/?p=42052#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/ifintechworld.com\/"},{"@type":"ListItem","position":2,"name":"How higher Fed rates for longer could squeeze ability of big companies to pay interest on debt"}]},{"@type":"WebSite","@id":"https:\/\/ifintechworld.com\/#website","url":"https:\/\/ifintechworld.com\/","name":"Repay Down","description":"Latest Personal Finance News, Tips and Updates","publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ifintechworld.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ifintechworld.com\/#organization","name":"Repay Down","url":"https:\/\/ifintechworld.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","width":558,"height":90,"caption":"Repay Down"},"image":{"@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","caption":"News Room"},"sameAs":["https:\/\/ifintechworld.com"],"url":"https:\/\/ifintechworld.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/42052","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=42052"}],"version-history":[{"count":1,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/42052\/revisions"}],"predecessor-version":[{"id":42054,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/42052\/revisions\/42054"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/media\/42053"}],"wp:attachment":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=42052"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=42052"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=42052"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}