We may need more than the fed to reign in Inflation.
Corporate credit is defying the Fed’s push for tighter money, Axios’ Neil Irwin writes.
Recently, corporate bond yields have fallen relative to Treasuries, meaning businesses lending conditions are still highly stimulative. It is one of many signs that markets have not tightened nearly as much as might be expected, given the Fed’s policy U-turn.
Why it matters: The Fed’s strategy to rein in inflation is premised on tightening the screws on credit — but based on the results so far, it may need to get even more aggressive.
By the numbers: Since the Fed’s shift began in early November, the 10-year Treasury yield has surged (from 1.55% to 2.83%), as has the average rate for a 30-year fixed-rate mortgage (3.09% to 5.00%).
Initially, corporate borrowing costs rose faster, as typically happens when the Fed tightens, which is partly how monetary policy slows the economy. But in the last month, the usual pattern hasn’t applied: The spread between risk-free rates and corporate bond yields has narrowed.
Last week, Aaa-rated bond yields were 1.07 percentage points higher than Treasury yields, according to Moody’s data, about the same spread as early November and down from 1.55 percentage points on March 8. It averaged 1.62% in the decade of the 2010s.Axios Markets By Matt Phillips and Emily Peck · Apr 18, 2022