February 27, 2023

Rates on Corporate Bonds Settle Down After October Peak

The Federal Reserve again raised interest rates at the beginning of February, this time by a quarter-point, but an analysis from the U.S. Chamber of Commerce finds that the cost of those hikes on businesses and consumers is tailing off.

The average rate for a AAA-rated corporate bond peaked at around 5.4 percent in October and has since settled closer to 4.6 percent. Meanwhile, the average rate on a 30-year fixed mortgage spiked at over 7 percent in November, but has since stabilized at 6.3 percent, the U.S. Chamber found.

“The slight drop in rates from late 2022 and their stabilization since indicates that the markets originally overestimated how much the Fed would raise rates,” wrote Curtis Dubay, chief economist for the chamber. “The markets now believe the Fed won’t raise rates much more than it has.”

That’s good news for businesses, as it means borrowing costs are likely to remain near the current level, even if the Fed follows through on its plan for two more smaller interest rate increases. “That will allow for better planning and an increase in long-term investing,” Dubay said.