Interest Rates are Rising for Business Borrowers

By Jeffrey Cohen, President and Founder, US Advanced Computing Infrastructure, Inc. An Illinois Consultancy and Investment Advisory Firm

US interest rates are rising. According to MarketWatch, one-month US Treasury Bill futures are yielding 5.4%, up from 0.0% a little more than a year ago.

Corporate bond interest rate indices, which measure a diversified (better) set of bond yields are also higher. Of course, the cost of debt is based on the company’s and security’s debt rating. Spreads seem ‘normal,’ so it is most likely the underlying risk-free rate of return that is driving bond yields higher.

Spreads seem to suggest that investment grade companies are still a very good risk, with spreads from 0.5% to 1.5% above 3-year US Treasury Notes.

The High Yield 100, or the 100 largest junk bonds, have a spread of ~3.5%, since those large-scale debits have some improved liquidity and transparency.

A diversified package of junk bonds (Triple-C rated) carries a spread of 9%. Just imagine you are a corporate borrower in a tight spot and the banks ask for 13.7% interest rates, plus the cost of arranging the debt, and likely some hefty fees. That is the situation today.