Low-rated US companies borrowed record amounts in the loan market last year taking advantage of low-interest rates and generous credit. Now, all that debt is starting to get more expensive.

So-called leveraged loans typically have borrowing costs that float and the Federal Reserve suddenly faster pace of interest rate hikes is set to drive them up. Investors are paid more as rates rise, which made the loans attractive. Borrowers weren’t also keen because rates were low and the Fed had set out a gradual path to raise them. But inflation knocked that off course.

Just last year, many on Wall Street expected a gradual increase in interest rates, but those expectations were upended by persistent inflation that helped spark the worst bond route in decades early in 2022, sending the yield on the benchmark 10-year treasury note of the weather for borrowing costs to its highest level since 2018. Companies with heavier debt loads can find themselves running short on cash if their interest rates climb alongside wages and other operating expenses.

It is one of the biggest concerns that we have and we have been tracking it in our portfolios since the end of last year said so Let Mukherjee head of investments at Lake more partners.