The Fed has hiked rates 525 bps since March 2022 but the net interest payments of corporations has actually declined. Why? Many companies locked in low interest rates on their debt in 2020-21 and are now earning much higher yields on their cash.
Microsoft is a prime example. Its interest expense was unchanged over the last year at $492 million while its interest income jumped from $552 million to $905 million. $MSFT
wsj.com
wsj.com
In terms of borrowing costs, rising interest rates have hit smaller companies much harder than larger ones. This could be part of the explanation for their significant underperformance over the last two years w/ $IWM down 16% vs. a 3% gain for $SPY.
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