Wells Fargo is of the opinion that corporate borrowers are ready to put up with an increase in interest rates.
At the end of last week, Maureen O’Connor, the global head of the syndicate of high-yield debt obligations of the bank, during a conversation with media representatives, said that currently there is a tendency to increase sales of new bonds in the investment class and high-yield debt markets. According to her, this circumstance can be used as an opportunity to enter the debt markets of the United States.
Maureen O’Connor says that there is currently a kind of tacit agreement with a consistent increase in interest rates on a regular basis. She noted that some borrowers are ready to accept the fact that this trend will have a long-term character and will become a circumstance determining the state of affairs in the financial sector for a long period.
This month has already become historically stressful for the high-grade and junk debt markets. Last week, bonds were sold all over the world, the total value of which exceeds $110 billion. The beginning of this September was the busiest in the entire history of observations.
Maureen O’Connor says that currently companies, being in a kind of waiting mode for the next decision of the Federal Reserve System, are not wondering when the dynamics of interest rates will change the vector downward but are interested in the moment of the peak of this indicator. According to her, it is now relevant to reflect on whether actions to increase the balance sheet, refinance debt, finance acquisitions, and study capital investments are appropriate in the current circumstances.
In August, the media reported that data published by the Federal Reserve System indicates that pressure is currently increasing in the area of consumer lending.
Last month, it became known that in the United States, the amount of household debt reached a landmark of $17 trillion. At the same time, information was made public this year that credit card debt exceeded $1 trillion. The Fed data shows that the total household debt immediately before the coronavirus pandemic increased by $2 trillion.
At the same time, the banks of the United States published information on income, which indicates that the write-off rates on consumer loans and credit cards are showing continued growth. This dynamic is still below the level that was recorded during the Great Recession.
According to experts, in the long term, it may turn out that the current situation is not critical. At the same time, they noted that the tendency to write off funds is going up and to the right, and this should be observed.
The Fed reported in August that the savings reserves that were laid down during the coronavirus pandemic had largely been depleted. At the peak, the amount of these funds reached $2 trillion. In the near future, these reserves may be finally exhausted. There is also a version that the savings have already dried up, but information about this has not been made public. This is nothing more than guesses and assumptions that have no official confirmation.
As we have reported earlier, Wells Fargo to Pay $1 Billion to Settle Investor Lawsuit.