Junk-Rated Companies Are Borrowing Again
Rising interest costs will hit low-rated issuers
Bond yields have been rising again lately. That could create complications for low-rated companies that had just started to enjoy having easier access to credit.
As inflation showed signs of easing early this year, investors bet that the Federal Reserve might pivot quickly to slashing interest rates. That increased demand for bonds, driving down yields on new and existing corporate debt.
Speculative-grade companies such as Caesars Entertainment Inc. CZR 4.15% and American Airlines Group Inc. AAL 1.49% seized the moment. Altogether, these companies issued almost as many bonds in January and February as they did in the entire second half of 2022, when rising yields slowed borrowing to a trickle.
More recently, though, inflation data has come in hot and borrowing costs have climbed again. That could translate to another slowdown in bond sales—potentially good news for the Fed, which is trying to restrain economic activity as it fights inflation, but bad news for businesses that need to borrow to make ends meet.
The record low yields of 2021 enabled companies to lock in low interest rates and push out bond maturities. A significant wall of maturities won’t arrive until 2025.