In the 3-month period beginning with late February 2020, total Commercial and Industrial (C&I) loans swelled by 25-percent from $2.4 Trillion to over $3.0 Trillion.  The surge in demand resulted in a shock to interest rates which moved quickly higher.  The U.S. Corporate BBB Effective Yield surged during one 3-week period in March from 2.6% to briefly over 5.5%.  Following this initial surge in capital demand, bond rates began falling significantly faster than debt levels.

As of the most recent August releases, the BBB rate had fallen 20 basis points below its pre COVID-19 level while loan demand remains 20% above at $2.8T.  That the combination of a 25-percent increase in loan demand was met with only a brief spike in rates followed by rates that are now below pre-pandemic levels illustrates the robustness of credit markets in the current recession.  By comparison, yields exceeded 10-percent at their peak during the Great Recession and remained strongly elevated for roughly 12-months.

Access to credit at reasonable rates is an essential component of an economic rebound, particularly in markets which are capital intensive and demand access to credit.  The combination of access to well-priced credit coupled with improving new orders activity and a recovery of the manufacturing supply chain as monitored by the Gardner Business Index during the second-half of 2020 supports the growing belief that the economy will exit this recession by year-end 2020 or soon thereafter.

Despite elevated debt levels, the cost of capital as represented by its interest rate is currently below pre-COVID levels.