US Bond Yield Surge Prompts Some Companies to Delay Debt Sales

A handful of companies have held back on selling high-grade corporate bonds in the US after yields have climbed in the last week close to their highest levels since the middle of last year, boosting potential borrowing costs. The average yield on a US high-grade corporate bond was 5.41% at Wednesday’s close, hovering around its highest level since July and up from 5.33% at the end of last year. “If we think about where rates are today and upcoming economic data with payrolls and CPI, you probably have more downside than upside to yields, particularly as further rate cuts remain the default in Federal Reserve communications.” But that hasn’t stopped many companies from borrowing in the high-grade market. “From our perspective, rate volatility can be problematic just because of hedging that dealers may put on when pricing deals, if Treasuries are too volatile.” One positive for high-grade corporate bonds is that higher yields will draw demand from investors like pensions and insurers, which focus on interest payments rather than valuations.