Discovery Inc. crossed the finish line on Wednesday, despite growing bond-market tumult and a surge in borrowing costs. The historic $110 billion Hollywood tie-up comes as a powerful selloff in long-dated Treasurys has gripped financial markets, pushing up benchmark yields to their highest levels since 2002. In practical terms, that means increased borrowing costs for families, businesses and the U.S. government.
How to think of the 60/40 portfolio amid rising bond yields Play video: How to think of the 60/40 portfolio amid rising bond yields For Paramount , that meant pricing $5.25 billion of 10-year investment-grade bonds at a spread of 262.5 basis points (2.625 percentage points) above the benchmark Treasury rate, according to Bloomberg. Don’t Short Yourself offers weekly money tips to help you earn it, stack it and grow it. I would like to receive updates and special offers from Dow Jones and affiliates.
I can unsubscribe at any time. With the 10-year Treasury yield hitting 5.3% on Wednesday, that equates to roughly 7.925%. That compares with the roughly 7.5% rateon new 30-year fixed mortgages, according to Mortgage News Daily.
Higher mortgage rates have kept the housing market largely on ice. Higher oil prices as the Iran war enters an eighth month have played a role in pushing Treasury yields higher, mainly because investors want to get paid more to offset inflation risks. But on Wednesday, the large Paramount deal, itself, also appeared to be a factor in pushing long-dated yields higher.
There’s also been selling pressure out of Europe, he said, and concerns about the price of oil over the next few weeks as diplomatic talks between the U.S. and Iran appear to have stalled. Brent crude futures for November delivery rose 0.9% to settle at $103.53 on Wednesday, and have soared 42% during the third quarter, according to Dow Jones Market Data. Of note, Paramount’s financing of its Warner Bros. acquisition ended up including more “junk”-rated bonds and loans than initially expected, and a smaller reliance on investment-grade bonds.
That’s important because while selling junk bonds with below-investment-grade ratings typically ends up being more expensive, the investment-grade market offers less flexibility in terms of retiring the debt early. Keeping the option to repay expensive debt early would be one way large companies look to navigate today’s more expensive borrowing backdrop. Another way would be to wait, and hope, for yields to fall before issuing new debt.
Extract — continue reading at the source.
