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Corporate Debt Market

Corporate Debt

With mortgage rates inching up and turmoil in the markets the Corporate Debt rates are heading higher.

Rapidly rising rates aren’t just affecting regular folks who want a mortgage — they’re rippling through the corporate debt market too, Axios’ Kate Marino writes.

Why it matters: The speed and volatility at which risk has repriced over the last few months have caused a traffic jam in corporate lending. That could mean a slowdown not just in companies borrowing, but also in things like M&A that these borrowings fund.

How it works: When large U.S. companies want to borrow money — for instance, to make acquisitions — an investment bank usually agrees to underwrite a debt offering, with caps on the interest rates baked in.

The bank will eventually sell off the debt in pieces to the mutual funds and hedge funds that invest in corporate credit.

Usually, the prevailing cost of capital doesn’t change that much between the time that the deal is agreed upon, and the point at which the bank sells the debt to investors, which could be a few months later.

Axios Markets By Emily Peck and Matt Phillips ·Mar 25, 2022