Greetings,

Companies cannot escape the pressure of rising borrowing costs as US Treasuries continue to sell off on fiscal concerns. The situation is worse for borrowers paying a risk premium -- which are only getting steeper and more complicated. More on that below.

Also in the news:

• Distressed US loans reach highest level since 2020
• Finance teams spend 26% of workweek on AI verification
• Wall Street profit, bonuses expected to hit records
• Accenture contractor removed from FBI after data breach

A sharp sell-off in US government bonds has driven up borrowing costs for companies, particularly those with low credit ratings, with the risk premium for companies rated triple C or lower rising to its highest since 2022. Bank of America has cut its forecast for investment-grade debt issuance, and companies such as Paramount Skydance and McCormick are adjusting their borrowing strategies in response to the rising costs.

The value of US loans trading below 60 cents on the dollar has surged to $65 billion, the highest since March 2020, according to strategists at JPMorgan Chase. The technology sector, particularly software companies, is the most affected, facing a difficult refinancing environment with over $100 billion in maturing debt. JPMorgan projects default rates for high-yield bonds and leveraged loans to rise next year to 2.75% and 4.5%, respectively.

Finance teams spend 26% of their workweek verifying or correcting AI-generated outputs, according to a Datarails report. The survey of 270 CFOs and finance leaders highlights a significant barrier to trusting AI for critical tasks, with 75% citing lack of auditability as the main concern. Despite this, 53% of respondents plan to expand AI use, and 60% are redeploying employees to higher-value tasks.

Oura's attempt to go public faltered as investors viewed it more as a wellness gadget maker than a technology platform, highlighting the challenges faced by single-product companies. Oura's revenue is primarily from ring sales, with only 20% from memberships, raising doubts about its long-term growth potential.

US consumer spending has surged 6.1% in the past year, driven by a resilient job market and rising asset prices, despite concerns about inflation and the overall economy. The trend has fueled economic growth, with inflation-adjusted spending up 2.6%. However, the spending has outpaced disposable income, leading to a decline in the savings rate and a rise in debt levels.

The Federal Reserve is reviewing the private credit market because of concerns about the rapid growth of bank lending to private credit firms. Loans to nonbank institutions have increased from $300 billion in 2016 to over $1.5 trillion according to Federal Deposit Insurance Corp. data, and now account for 11% of all bank loans outstanding. The market faced a significant challenge earlier this year when investors withdrew funds amid concerns about software companies' viability in the artificial intelligence era.

In an opinion piece, Dilara Demirci of Ingram Micro TR advises CFOs to prioritize cash flow over revenue growth in inflationary times. Demirci highlights the importance of working capital management to ensure sustainable business performance, noting that inefficient working capital can quickly erode financial stability, even if the income statement shows growth.