Capital Markets: Pay to Play
As Higher Interest Rates Disrupt Lenders' Financing Mechanisms,
Spreads to Borrowers Climb Higher
Tightening Monetary Policy kicks off widening spreads by lenders. Since the first federal funds rate hike in March 2022, the capital markets have been disrupted, due to financial market volatility revolving around inflationary pressures and expectations of an upcoming recession. Whether these concerns are warranted or not, they have resulted in not only higher base rates in benchmarks, such as the Secured Overnight Financing Rate and Treasuries, but also higher spreads for permanent financing, bridge financing, and to a lesser extent, construction financing.