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May 24, 2018

Corporate Borrowing Costs Are on the Rise - May 24, 2018.- MoneyBeat | The Wall Street Journal.

The Wall Street Journal
MoneyBeat

Corporate Borrowing Costs Are on the Rise

By Ben Eisen
Morning MoneyBeat is the Journal’s pre-market primer. To receive the newsletter via email, click here.
Market Snap at 05/24/2018 07:55:02 AM ET
S&P 500 Futures -0.1%
2728
DJIA Futures -0.14%
24823
U.S. 10 Year -1/32
2.995%
WSJ Dollar Index -0.1%
87.12
Crude Oil -1.34%
$70.88
Gold 0.47%
$1300.90
Europe
Asia
FTSE 100 -0.22%
Nikkei 225 -1.11%
DAX -0.21%
Hang Seng 0.31%
CAC 40 0.29%
Shanghai -0.45%

Overnight Developments

  • Declines in shares of car makers weighed on markets in Europe and Asia after the White House threatened new tariffs. S&P 500 futures pointed to a nearly flat open.
  • The Stoxx Europe 600 was recently up by 0.2%.
  • Earlier, Japan’s Nikkei fell 1.1% and South Korea’s Kospi shed 0.2%.
  • The Breakfast Briefing

    Companies are having to pay up to borrow, one more sign that the easy-money post-crisis years are coming to a close.
    Top-rated corporate bonds were trading this week at 1.14 percentage points above comparable U.S. Treasurys, according to Bank of America Merrill Lynch index data. While that's still quite low by historical standards, it's well higher than their recent low of 0.91 point in January.
    Wider spreads and higher Treasury yields are pushing up the cost of borrowing for companies. The yield on triple-B rated corporate bonds, one approximation for the cost of selling that type of debt, was at the highest in more than two years recently at about 4.4%.
    Higher borrowing costs for companies show how market conditions are starting to tighten as the Federal Reserve lifts rates, pulling back after years of easy-money policies. The central bank is expected to lift rates for the second time this year in June, and analysts and traders believe one or two more increases are in store later in 2018.
    To be sure, the corporate bond market remains quite healthy at the moment. For example, S&P Global Ratings projects the default rate among speculative-grade companies to fall to 2.5% by next March from 3.4% this past March and 4.1% in March of 2017.
    Additionally, S&P 500 companies reported the best three months for earnings in years during the first quarter, another sign of corporate health as large firms benefit from an improving economy and a tax-code overhaul.
    But tightening financial conditions inject another dose of uncertainty into the financial markets. Substantially wider credit spreads could add resistance to a further rise in the stock market, some analysts say.
    Already, rising yields are hitting bondholders. The iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, the largest ETF tracking the space, is down 5.6% this year, far under-performing the S&P 500's 2.2% rise.
    Are you worried about rising corporate borrowing costs? Let the author know your thoughts at ben.eisen@wsj.com.

    Daily Factoid

    On this day in 1844, the nation’s first telegraph line became operational when Samuel Finley Breese Morse, portrait painter and co-inventor of the telegraph, transmitted this message to the floor of the U.S. Senate: “What hath God wrought.”

    Key Events

    U.S. jobless claims, out at 8:30 a.m. ET, are expected to slip to 220,000.
    The FHFA House Price Index, to be released at 9 a.m., is expected to rise 0.6% in March. Meanwhile, U.S. existing-home sales for April are expected to fall slightly to an annual rate of 5.55 million when released at 10 a.m. ET.
    Natural gas stockpiles are expected to have risen by 89.89 billion cubic feet in the week ended May 18. The data are expected at 10:30 a.m. ET.
    The Dallas Fed’s Robert Kaplan and the Atlanta Fed’s Raphael Bostic will speak at a Dallas Fed conference at 10:35 a.m. ET.
    The Kansas City Fed's manufacturing index, due out at 11 a.m., is expected to have slipped in May.
    The Philadelphia Fed’s Patrick Harker will speak at 2 p.m. ET, and Mr. Kaplan again at 8 p.m. ET.

    Stocks to Watch

    Williams-Sonoma—Up 13%: Williams-Sonoma reported a larger-than-expected increase in quarterly same-store sales, as the seller of home furnishings reported positive growth across its brands.
    General Motors—Up 0.8%: The Trump administration is considering a plan that would impose new tariffs on imported vehicles on national-security grounds and potentially benefit domestic auto makers.
    Qualcomm—Down 0.2%: Bloomberg reported late in Wednesday's session that the chip maker plans to unveil a dedicated chip to power standalone virtual-reality and augmented-reality headsets as it seeks to break into new businesses beyond smartphones.

    Number of the Day

    6.5%
    The amount earnings for companies in the Stoxx Europe 600 are expected to have risen in the most recent quarter, well below the 25% expected growth for S&P 500 companies.

    Must Reads

    Comcast is in the advanced stages of preparing a cash offer that would top Disney’s all-stock, $52.4 billion deal for Fox’s entertainment businesses.
    William Ackman’s Pershing Square Capital Management has built a stake in Lowe’s valued at roughly $1 billion.
    The Trump administration is using national-security laws to consider imposing new tariffs on vehicle and auto-parts imports. The president is asking for tariffs of as much as 25% on car imports. Japan expressed alarm about the threatened tariffs.
    Federal Reserve officials signaled in their latest meeting minutes that they are likely to raise interest rates next month and grappled with how much further rates will need to increase in coming years.
    The NFL approved a new policy under which teams can be fined if their players are on the field during the national anthem and do not ‘‘stand and show respect’’ for the U.S. flag.