Fed interest rate hike could spur more healthcare borrowing
A Federal Reserve interest rate hike could come as soon as the group meets Sept. 16-17, but the move isn’t likely to deter healthcare borrowing. In fact, it may even encourage providers to accelerate spending plans.
Not-for-profit healthcare organizations have returned to the bond market to fund new projects and refinance older debt after a significant pullback in 2014.
In the first six months of the year, healthcare bond issuances totaled $18.9 billion, a 76% increase over the prioryear period’s $10.8 billion, a Thomson Reuters analysis found.
Of that amount, $12.6 billion came from hospitals—a 215% jump over last year’s $4 billion, according to data from advisory firm HFA Partners.
In the current low interest-rate environment, even a 1% or 2% increase would probably have minimal impact, said Pierre Bogacz, managing director at HFA.
“There’s still a lot of cushion,” he said.
Bogacz says, if anything, healthcare borrowers might move up capital spending plans to get ahead of potential rate increases.
Any initial rate uptick is likely to be small—a quarter of a percentage point— for short-term rates. But it would gradually increase to 2.75% by late 2017.
Hospitals may feel the sting in their investment portfolios. Many health systems have changed their asset allocation to invest more in bonds rather than volatile stocks. But as interest rates rise, bond prices fall, which could further hurt investment returns, Bogacz said.
Federal Reserve chair Janet Yellen