For the past 18 months, Federal Reserve Chair Jerome Powell has frantically been trying to break Americans’ borrow-and-spend habits. It’s critical to his fight against inflation.
To Edward Altman, finance professor emeritus at New York University’s Stern School of Business, this is a reflection of just how ingrained the borrow-and-spend model became in Corporate America during a two-decade period in which Fed policymakers kept benchmark rates pinned near zero for long stretches.
Indicators of the financial health of investment-grade companies have begun to deteriorate, according to BI data. As their leverage ticked up between the end of March 2022 and mid-2023, a key gauge of their ability to make payments — known as interest coverage — edged lower, the data show. Given the extreme nature of the borrowing spree over the past decade, it’s likely that other meltdowns are lurking in ordinarily safe corners of the market, said Hans Mikkelsen managing director of credit strategy at TD Securities. “It has to be that there will be things that blow up,” he said. Years of easy monetary policy meant that “the amount of risk-taking was extreme.’’
But in general, the urge to take on debt shows few signs of wavering. Even after a spike in long-term bond yields triggered a slowdown in debt sales the last couple weeks, September was still one of the busier months of the year. Companies raised a gross $124 billion in the bond market. ADVERTISEMENT CONTINUE READING BELOW
Dozens of such companies in North America have increased overall debt while buying back shares on the open market, according to BI data, a signal they have ample cash and a confident outlook.
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