Investors and Bankers Holding Back Amid Volatility and High Rates

Investment-grade bonds, junk bonds and small business loans alike have seen little activity this month.

In the wake of the March 10 collapse of Silicon Valley Bank, investors and banks are holding back, The Wall Street Journal (WSJ) reported Friday (March 24).

Among investment-grade companies, the week of March 10 through 17 passed with no new bonds being sold. That was the first time that’s happened during a week in March since 2013, according to the report.

In the junk-bond market, sales have largely stalled, with sales totaling $5 billion this month, whereas the five-year average is $24 billion, the report said.

The report attributes these trends to shaky investor confidence and the ups and downs of the Treasury market, which has seen some of the biggest daily changes in years and has led companies to avoid the bond market.

Interest rate increases too have made it more expensive to borrow and to issue leveraged loans, per the report.

Small businesses are also finding it difficult to access credit, according to the report.

Lending had eased since the Fed cut rates early in the pandemic, but the availability is tightening up now as regional banks alter their lending standards and deal with withdrawals of deposits that have left them with less available capital, the report said.

In the case of leveraged loans, American and European banks have been reducing their already low offerings due to the recent takeover of Credit Suisse Group and the troubles among regional banks in the United States, Bloomberg reported Tuesday (March 21).

The issuance of leveraged loans was already at its lowest point since 2015 in the United States and 2016 in Europe and had only just begun to recover, according to the report.

Personal loans have been harder to come by as well.

Banks, credit unions and investors are balking.

For example, LendingClub’s recent results showed that higher interest rates are cutting into investors’ demand to buy loans. Quarterly loan originations were $2.5 billion in the latest quarter, down from $3.1 billion last year.

Looking ahead, the company said it expected the decline to continue during the current quarter.