Companies are Facing Increased Interest Expenses. What should we do?

What if we only invest in profitable, unleveraged companies?

By Jeffrey Cohen, Founder and President, US Advanced Computing Infrastructure, Inc. A consultancy and investment advisory firm.

Interest rates have risen significantly this year for investment grade (AA & Baa) US corporations that borrow using the bond market. Those bonds now yield an average of 5.68% based on the US Corporate Indexes, Bloomberg Fixed Income Indices, as reported in the WSJ online on August 11, 2023. That equals 1.11% more than the yield on a 3-Year US Treasury future.

Interest rates are at the level of retail credit card rates for companies below investment grade, or junk bonds, or high yield debt. Those bonds now yield an average of 13.64% based on High Yield Bonds, ICE Data Services, as reported in the WSJ online on August 11, 2023. That equals 9.07% more than the yield on a 3-Year US Treasury future.

We saw the latest inflation report from the Bureau of Labor Statistics, and it showed ‘core’ inflation up 4.7% over the past 12 months, and the headline CPI-U was up 3.2%, which is still above the statutory limit of 2% set by the US Congress for the Federal Reserve Bank. As a result, we may see further interest rate increases, which will…