Investing.com -- A sharp sell-off in US government bonds is forcing American companies to change their borrowing plans as costs climb to the highest levels since May 2020.
Borrowing costs for companies with the lowest credit ratings reached 17% this month. The rise follows Treasury yields climbing to multiyear highs, with investors demanding higher compensation for lending to businesses with weaker credit.
The risk premium for companies rated triple C or lower has increased to 12 percentage points, the largest spread since 2022. The yield on the 10-year Treasury note reached its highest level since 2002 last week.
Bank of America reduced its forecast for dollar-denominated investment-grade debt sales this month to $110 billion from about $160 billion.
Paramount Skydance sold $52 billion of debt last week to fund its $110 billion acquisition of Warner Bros Discovery. Demand for the company's two-year bonds was nearly double that of 30-year bonds, according to people familiar with the matter. Investors received more long-term debt than expected, which led to a sell-off after the bonds began trading.
"At the margin, we are seeing some deals pulled or delayed as investors become more selective," said James Carter, co-head of fixed income at W1M.
McCormick told investors last week it is evaluating currencies, duration and the ratio of fixed and floating rates for debt it plans to issue as part of its merger with Unilever's foods business.
"This is on the mind of investors these days, so we are staying very close to market dynamics as we continue to really evaluate our debt financing strategy," said Marcos Gabriel, McCormick chief financial officer.
Moody's estimated last year that a record $1.45 trillion of US investment-grade corporate debt will come due between 2026 and 2030.
Traders in futures markets are betting the Federal Reserve will raise interest rates three or four more times by the start of 2028, from the current range of 3.75% to 4%.