Why M&A, Buyback-Driven Growth Will Be Eliminated By Higher Interest Rates

In a new report, analysts at BNP Paribas discuss the disconnect between rising corporate bond yields and the elevated level of M&A deals and buybacks. According to BNP, buyback levels, M&A deals and corporate bond yields cannot all continue to rise for much longer.

Ignoring Borrowing Costs

In recent months, global equity markets seemed to have been ignoring rising corporate bond yields. Usually, this type of increase in yields would put downward pressure on share prices.

The major breakdown in equity markets around the world over the past several trading days may finally be the type of pressure than BNP predicted in its August 19 report.

“Higher yields put a brake on valuations as the present value of future cash flows is lower, but also because rising yields offer more opportunities for investors, and fewer are likely to feel ‘forced’ into equities just to get dividends,” BNP explained in the report.

Pre-Crisis M&A Activity Levels

BNP pointed out…

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