This past weekend I have read several takes from prominent accounts on social media saying that because long end US treasury rates have dropped and will continue to drop in the near future, businesses will be able to borrow at a lower rate.
These people completely ignore that business borrowing rates are a component of the reference rate + a credit spread. While it is true that the reference rate has dropped in the past few days, credit spreads have materially increased.
For companies with lower credit ratings, it is more expensive to borrow today than it was last week. If the turmoil continues, the cost of borrowing will increase, meaning companies will likely slow or stop projects that require borrowing. This will have immediate negative effects on the economy.
This past weekend I have read several takes from prominent accounts on social media saying that because long end US treasury rates have dropped and will continue to drop in the near future, businesses will be able to borrow at a lower rate.
These people completely ignore that business borrowing rates are a component of the reference rate + a credit spread. While it is true that the reference rate has dropped in the past few days, credit spreads have materially increased.
For companies with lower credit ratings, it is more expensive to borrow today than it was last week. If the turmoil continues, the cost of borrowing will increase, meaning companies will likely slow or stop projects that require borrowing. This will have immediate negative effects on the economy.