June 25, 2024 – New and conflicting data on commercial loans could add to uncertainty as financial markets await some clarity from the U.S. Federal Reserve about interest rates.
Despite favorable readings in June on consumer and producer prices, Fed Chairman Jerome Powell said that for now, policymakers are content to leave rates unchanged until they get a clearer signal on the economy. 

“While borrowing costs continue to rise for U.S. companies, a trend typically viewed as a negative sign for the economy, commercial loan volumes have started to grow, which is a positive signal,” says Gregory Schneider, Director of Commercial Loan Analytics at Coalition Greenwich

Corporate Borrowers Face Rising Prices
According to new data from Commercial Loan Analytics, spreads on SOFR-based commercial loans have climbed to 240 basis points. That is the highest level since the middle of 2022—pricing that is linked with higher credit risk, on average, among corporate borrowers.

In the initial few months in 2024, fixed-rate borrowers seemed to be getting some relief from elevated loan pricing. However, a closer look at the data reveals that a downward trend in pricing in January and February had reversed by March, potentially setting prices back on an upward trajectory.

A Long-Awaited Uptick in Commercial Loan Volume
Despite rising borrowing costs, overall C&I loan volume experienced month-over-month growth for the first time since mid-2023, where relative to February 2024 volume, March loan volume grew by a modest 0.25%. Throughout the second half of 2023, commercial loan volumes fell, at times precipitously, as balance sheet pressures and questions about the economy caused banks to tighten credit standards, and rising prices discouraged companies from borrowing. 

“The March rebound in loan volume seems to represent at least a temporary reversal from the contraction we saw last year, with an improving economic outlook allowing some banks to loosen their lending policies and giving some companies renewed confidence to borrow,” says Gregory Schneider.

Commercial Lending Market Insight is a quarterly review of data and analytics from the Greenwich Commercial Loan Analytics team.