On Sept. 21, the Federal Reserve approved a 0.75 percentage point interest rate increase, its fifth increase this year. The Wall Street Journal reports that bank financing costs respond more slowly than bond markets to Federal Reserve actions, with the lag ranging from several weeks to months.
“We are seeing some resurgence in interest in term loans because it is a cheaper alternative for many borrowers,” James Shepard, the head of the investment-grade debt capital markets business at investment and corporate bank Mizuho Americas told The Wall Street Journal.
According to data provider Refinitiv, highly rated companies raised $998.8 billion in bonds in the U.S. to date, compared with $177.9 billion in term loans during the same period. 2021 saw fundraising through bonds add up to $1.46 trillion versus $236.7 billion for term loans.
The report notes that term loans often have a shorter duration than bonds, with many of them ranging from three to five years.
Read the full Wall Street Journal report here.
