Companies scramble to borrow before rates rise in coming years

Tim Wallace
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BOND markets are set for a surge in the coming months as firms look to take advantage of low rates before economic conditions change, JP Morgan executives forecast yesterday.

It comes after Bank of England governor Mark Carney said he would consider hiking rates when unemployment falls below seven per cent, which he expects to happen in or around 2016.

Market interest rates are already edging up, reflecting both the Bank’s policy and increased hopes that the economy is at last taking off in the UK, northern Europe and the US.

“I have never seen such a race to optimise funding. We are seeing a rise in bond issuance from high grade to high yield ends of the market, and companies gaining working capital through trade finance,” Jose Maria Linares, the head of JP Morgan’s global corporate bank in Europe, Middle East and Africa told City A.M. “Issuing debt now is a smart trade – in two years time rates will be higher and corporates will look back and see they have missed the window.”

Rising confidence could also see a rush of merger and acquisition activity as firms at last start to spend some of the cash sitting on their strong balance sheets, with the focus expected to be in stronger economies like the US, the UK and Germany.