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Record borrowers, choosier lenders, and why a floating rate does not protect you on the day your loan comes up for renewal. |
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One Number
What governments and companies are projected to borrow from bond markets in 2026, 17% more than in 2024. OECD, Global Debt Report 2026 (March 2026) Much of it is not new money. It is old debt falling due, rolled over at today’s prices. |
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One Argument The world is queuing to borrow. And it is coming back to the queue more often than it used to.Governments stand at the front of the queue. The OECD expects 78% of what OECD governments borrow in 2026 to go on repaying debt they already owe. Companies stand behind them. Corporate borrowing from bond and loan markets reached $13.7 trillion in 2025, the highest ever after inflation. Long money has become expensive, so the queue is borrowing short. The OECD reports that governments and companies are increasingly issuing shorter-dated bonds to avoid higher long-term rates. It warns that this raises refinancing risk. Short debt is cheaper today. It also comes back sooner. Every shortened maturity is a renewal brought forward. The people handing out the money have changed. For a decade, central banks were the biggest buyers of government bonds. And they did not haggle. Now, the OECD notes, they have stepped back, and more price-sensitive investors such as hedge funds, certain institutional investors and households have taken their place. These lenders check the price. And they have raised it. In late September, Germany’s ten-year yield reached 3.65%, its highest in 17 years. By late October it had eased, but remains well above the 2.87% where it started the year. Your company stands in the same queue. If your facility is on a floating rate, the ten-year yield does not set your price. Euribor does, and Euribor follows the ECB, which raised rates in June and again in September. That shock is visible. It is on your monthly statement. The other shock is not. The price of your loan is set in public, every month. The permission is set by the lender in private, once, at renewal. And the permission is tightening. In the ECB’s July lending survey, a net 7% of euro-area banks reported tighter credit standards for loans to firms. The main reasons were risks to the economic outlook and lower risk tolerance. At renewal, your bank answers three questions you do not control. Whether to roll the loan. At what margin. Against what collateral and covenants. A floating rate fixes none of them. Tightening is mild, and it is fading. In the same July survey, the 7% was well below the 19% banks had expected three months earlier. A net 3% of banks saw demand for loans from firms rise. Banks are still lending. But a net 7% is an average across 159 banks. Your renewal is not averaged. It is one bank, one credit committee, one file. And it lands at a moment when everyone ahead of you in the queue is renewing more often too.
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One Position Treat renewal as your real exposure. The rate shock you can see on your monthly statement. The permission shock arrives once, at renewal, and nobody publishes it. It looks like a bank that rolls the loan at a wider margin, with tighter covenants or more collateral. Or a bank that does not roll it at all. Governments made their trade knowingly: cheaper money today, more renewals tomorrow. Know whether you have made the same one. The question for the management is not what we pay now. It is which facilities come up for renewal in the next two years, and what would make our bank say no or reprice. I am wrong if banks stop tightening. The ECB publishes its lending survey every quarter. One quarter’s easing is not a trend. If net tightening for loans to firms falls to zero and stays there for two surveys in a row, renewal gets easier, not harder.
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When does your credit facility come up for renewal, and what would make your bank say no? |
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