Corporate Borrowing Costs Surge, Pushing Firms to Delay Spending

Higher rates have reached corporate balance sheets

The Treasury selloff that started in the autumn now shows up in what companies pay to borrow, and that cost is starting to shape how they spend. In early October, the average yield on high-grade U.S. corporate bonds reached 6% for the first time since 2023, and U.S. credit risk premiums hit a six-month high.9 The ICE BofA US Corporate Index yielded 5.99% on October 1, which was 121 basis points higher than a year earlier.17 Over the same twelve months, the 10-year Treasury yield rose 112 basis points to 5.24%.11

At the low end of the credit scale, the numbers are much worse. In October, companies with the weakest ratings faced borrowing costs of 17%, the highest since May 2020. The risk premium on CCC-rated and lower debt widened to 12 percentage points, the most since 2022.3 By October 27, the CCC-and-lower index yielded 17.86% with a spread of 1,321 basis points. That spread had peaked on October 23 at the widest level in the index's published history, which starts in 2023.13 Stress across all junk debt kept building into the end of the month. The ICE BofA high-yield spread went from 3.14 percentage points on October 28 to 3.44 on October 30.18

Companies are no longer treating the change as a short-term market event. They are cutting new borrowing, borrowing for shorter terms and, in more and more cases, shelving spending.

Why yields jumped

The main cause is monetary policy. The Federal Reserve raised rates in September for the first time in three years. On October 28 it held its target range at 3.75% to 4.00%, and investors expect three more hikes over the next twelve months, starting in December.30 The Fed still calls inflation "elevated." September CPI came in at 3.7%.29 At the start of 2026, markets expected about 60 basis points of cuts this year. They now price roughly 50 basis points of hikes. One analysis calls that 110-basis-point reversal the second-largest hawkish repricing in 22 years, behind only 2022.22

A second cause is the sheer amount of borrowing. Economists surveyed by the National Association for Business Economics expect long-term rates to ease only slightly and not return to early-2026 levels. They put the rise down mostly to demand for credit: government deficits plus corporate borrowing for artificial intelligence. Morgan Stanley expects more than $500 billion of AI-linked debt issuance in 2026.21 Goldman Sachs projects that hyperscaler debt issuance will grow from $250 billion this year to $420 billion in 2027.1 All that supply gives buyers the upper hand, and they are setting tougher terms.

Deals are struggling and issuers are pulling back

The primary bond market is where the change was clearest. Paramount Skydance sold about $50 billion of debt tied to its buyout, and much of it lost value within hours. Campbell's and a Bain Capital Credit private-credit vehicle drew weak demand. Several high-yield borrowers postponed their deals.9 Demand for Paramount's two-year notes was close to double the demand for its 30-year bonds. That is unusual, and it shows how little appetite investors have for long-dated debt when rates are moving.3 One estimate suggests that Paramount's earlier delay in coming to market could add around $500 million a year to its interest costs.9

Bank of America cut its forecast for October investment-grade issuance from about $160 billion to $110 billion.3 Other trackers put the month nearer $100 billion, compared with $132 billion a year earlier and almost $195 billion in September.9 The exact figures vary, but every account shows a sharp slowdown. Invesco's Matt Brill summed up the position: borrowers who must raise money will pay more, and those who can wait are waiting.9

Companies that do borrow are changing how they do it. Many are choosing shorter maturities so they can refinance if rates fall. McCormick has said it is reconsidering the currency, maturity and fixed-versus-floating mix of the debt for its planned acquisition of Unilever's food business.3

How higher rates turn into spending cuts

Credit analysts all describe the same chain of effects. S&P Global's Michael Zdinak warned that if borrowing costs stay high into next year, companies will delay investment, M&A, share buybacks and expansion whenever returns no longer cover the higher cost of capital.3 Wilmington Trust's Randy Vogel said the same thing in practical terms: the more cash goes to debt service, the less is left for new products and updated machinery.2

The clearest numbers come from Europe. Goldman Sachs calculates that interest expense at Stoxx 600 companies has gone from 1.25% to 1.85% of sales since 2022. That increase has cut earnings by more than 5%.1 A quarter of that debt must be refinanced within two years, and another quarter carries floating rates, so higher rates could reach about half of it fairly quickly.1 Goldman says management teams are concentrating on reducing leverage, which could take money away from investment and shareholder payouts.4

Survey data supports this. In the ECB's latest access-to-finance survey, a net 46% of euro-area firms reported higher bank-loan rates, up from 42%. Among large firms the balance rose from 41% to 55%. A net 21% reported falling profits, compared with 16% the previous quarter.25 Smaller firms are reportedly delaying capital spending, turning to leasing and internal funds, and concentrating on working capital. Research cited in the same coverage finds that firms with more floating-rate loans cut investment borrowing much more sharply.28

The weakest U.S. companies face the hardest choices. CreditSights lists rental-car firms, movie theaters, telecom companies and retailers such as PetSmart, Michaels and Guitar Center in the CCC group. For these companies, interest already takes a large share of cash flow.2 Cornell's Drew Pascarella warned that if they cannot issue new bonds when existing debt comes due, some could go bankrupt.2

Where the reporting diverges: rates risk versus credit risk

The coverage disagrees on what is actually pushing costs up. One view holds that rising Treasury yields, rather than worries about corporate credit, explain higher high-grade borrowing costs. On this view, investment-grade spreads stayed near historic lows even as issuance through August ran almost 30% above last year.15 The data mostly back this for top-rated borrowers. On October 27, the investment-grade spread was 88 basis points, toward the low end of its range since 2023.13 Only about 15% of the index yield comes from spread, and the rest comes from the Treasury curve.20

That explanation does not hold further down the credit scale. Spreads on CCC-rated debt are at record levels and high-yield spreads are widening quickly, which means investors are now pricing in default risk, not only interest-rate risk.1318 On a careful reading, the market has split. High-grade companies are paying more because money costs more for everyone. Junk issuers are paying more because money costs more and lenders doubt their ability to repay. Barclays strategists noted that corporate spreads usually widen after a month in which the 10-year Treasury yield rises at least 40 basis points. If that pattern holds, the higher-quality tier may not stay unaffected for long.9

AI spending is holding up, but not at every company

One big category of borrowing has barely reacted: AI infrastructure. Much of this year's investment-grade issuance has come from companies building data centers, and for them speed matters more than an extra one or two percentage points of interest.3 Morgan Stanley's Andrew Sheets argued that if a technology is transformational and the returns are in double digits, borrowing at 5.5% versus 6% makes little difference.24 Future Standard divides business investment into three parts. AI-related spending, about 40% of the total, is strong. Rate-sensitive structures, about 15%, are weak. The remaining 45% is modest but improving. The firm expects higher yields to keep hurting the rate-sensitive part.22

That resilience is limited to the strongest borrowers. Neocloud providers depend on debt to buy servers, and they are under pressure. CoreWeave's bond yields came close to 15% in mid-October, and its shares fell 15% in one session.24 HSBC's Michael Roberts said lenders have become more selective and are asking for higher returns to fund AI projects.24 Cash-rich hyperscalers can absorb higher rates. Smaller AI infrastructure firms that depend on borrowed money are exposed in the same way as other highly leveraged companies.

What comes next

No major forecaster predicts a crisis. Goldman does not expect a "systemic credit event." It points to softer commodity prices, easing inflation and better growth in 2027 as factors that should limit the damage, while calling debt costs a "growing constraint."1 The bigger risk is the refinancing wave ahead. Moody's estimates a record $1.45 trillion of U.S. investment-grade debt maturing between 2026 and 2030, much of it borrowed when rates were near historic lows.3

The overall picture is consistent. Under current conditions, interest costs are lowering earnings and pushing management teams to prioritize their balance sheets. Spending that only made sense with cheaper money is likely to be delayed rather than cancelled. Economists' advice to companies is to go ahead with projects that work at today's rates and shelve those that depend on rates falling.21 With the Fed expected to keep raising rates and junk spreads at record levels, companies are likely to keep cutting costs and spending in the months ahead.