Global corporate debt to drop amid higher funding costs: report

Higher borrowing costs are reducing the appetite for new financing as corporations take a more conservative stance.

Global corporate net debt has fallen by 1.9% to $8.15 trillion in the past year, according to a report released Wednesday.

Jerome Powell, chairman of the US Federal Reserve. (Al Drago/Bloomberg via Getty Images / Getty Images)

The study of 900 top firms showed indebtedness is expected to decline by $270 billion in the coming year caused by higher interest rates and an anticipated economic slowdown, according to the corporate debt index by investment firm Janus Henderson.

“Economic growth may slow or go into reverse, but companies are starting from a very profitable position,” said Seth Meyer, fixed income portfolio manager at Janus Henderson.

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While the trend was globally to trim borrowings, US companies’ net debt rose by 0.5% in the past year, the study found.

Looming debt

US Treasury Secretary Janet Yellen listens to President Joe Biden during a hybrid meeting with corporate chief executives and members of his cabinet to discuss the looming federal debt limit. (Chip Somodevilla/Getty Images / Getty Images)

The global economy has seen central banks inject trillions of dollars into to stem the impact of the COVID-19 pandemic.

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Those measures are starting to be reversed as economies rebound and inflation soars.

NYSE Floor Traders

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City. (REUTERS/Brendan McDermid/Reuters Photos)

Some borrowers in the corporate bond market have opted to redeem their debt instead of selling new paper at higher costs, bringing the face value of listed bonds down by $115 billion since May 2021, Janus Henderson said.

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The decline in global corporate debt, the first since at least 2014/2015, was heavily influenced by the energy sector, as high prices led oil and gas firms to cut their borrowings by $155 billion on a constant-currency basis, the study found.

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Reuters contributed to this report.

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