Welcome to Bond TV, first in private capital news. Hello and welcome to another episode of Bond Capital TV. I’m Leslie Clark and today we’re diving into the evolving financial landscape as we head into the final quarter of 2025. The global economy is showing modest resilience and signs of a slowdown in the US are emerging. Trade tensions, rising tariffs, and geopolitical fragmentation continue to erode business confidence and complicate planning. The exception, AI and big tech continue to grow exponentially, driving capital investment and productivity gains.
Let’s unpack what this means for business owners, investors, and operators, especially those running companies with revenues between $20 million and $500 million across major central banks, the Federal Reserve, Bank of Canada, European Central Bank, Bank of England, and Bank of Japan. We’re seeing mixed signals in the yield curve. Over the past 3 months, curves have steepened slightly, reflecting rising long-term yields. This suggests investors are demanding more compensation for future risk. Over two years, curves have flattened, a classic signal of tighter monetary policy and economic slowdown. And over 30 years, the slope is less steep, indicating long-term normalization and a return to prepandemic structural trends. Something to watch here is the trend of added upward pressure on longer duration bonds coming from investors leaving the US dollar along with certain central banks preferring gold over treasuries for safe haven trades.
Collectively, the global central bank trend is one of moderation. Rates have come down from their 2022 and 23 peaks and remain elevated compared to the post 2008 era. And let’s not confuse our eras, unless you’re on tour with Taylor Swift. For historical context, the 50-year average federal funds rate is 4.85%. This aligns with Howard Marks observation that US interest rates are not historically high, just higher than the recent past.
Let’s look at current policy rates. Federal Reserve 4.33% and the next decision is October 29th, 2025. Bank of Canada 250% and the next decision is October 29th, 2025. As you can see here, global central bank easing is in play except for Japan, which has been tightening. In Canada, Governor Tiff Macklem recently warned the Canadian economy managed a soft landing. Unfortunately, we’re not going to stay on the tarmac for long. Uncertainty is the new reality. He cited rising tariffs and geopolitical tension as threats to investment and employment. Macklem further emphasized that uncertainty is already harming business investment particularly in the manufacturing and energy sectors. This backdrop creates a headwind for innovation and growth.
Turning now to the US Treasury term premium at 67 basis points September 11th. It reflects an upward trend. This signals that investors are demanding more compensation for long-term risk, a key input for stress testing debt. Meanwhile, TIPS inflation expectations for the next decade sit at 2.29% down from a recent high of 2.435%. This suggests inflation fears are stabilizing but not disappearing. However, the PCE personal consumption expenditures price index which is the measure preferred by the Fed has remained persistently higher than the target rate. Recent downward job growth revisions are likely pressuring the Fed to lower rates. The minds at Bond think it’s the unemployment versus inflation dilemma that is steepening the curve here.
The bond market is reflecting this uncertainty. Short-term yields are softening while long-term yields remain firm. This favors borrowers with shorter maturities and fixed rate structures. Locking in for 3 years feels like the right call for those sitting in the CFO chair, subject to stress testing your model. Of course, for US operators, the prime rate is 7.25%. Stress testing senior secured debt at 9.0% to 10.5% is prudent. Investment grade bonds yield 5.35% with small offerings starting at 250 to $350 million. For Canadian operators, the prime rate is 4.70% and stress testing at 6.45% to 7.95% is recommended. Investment grade bonds yield 3.16% to 3.75% with small offerings around $300 million. Private credit remains the fastest to cash alternative, especially for midsized businesses seeking discretion and flexibility and/or those unable or unwilling to access public markets. Now, let’s talk strategy.
Good times or bad, growth is critical to long-term success. As Mark Shelinger famously said in his article for Forbes, “In business, you’re either growing or you’re dying.” This quote emphasizes that stagnation is not a neutral state. It’s a decline in disguise. Growth isn’t just about revenue either. It’s about cultivating a culture of improvement, bold goals, and continuous learning. Moreover, companies that don’t grow struggle to attract and retain top talent, fall behind competitors, and risk fading away.
If you’re a business owner with $20 million to $500 million in annual revenue, how should you approach financing in this environment? Here are six smart strategies.
- Asset based lending. ABL offers up to 85% loan to value on fixed assets. Ideal for manufacturers reshoring operations or upgrading equipment.
- Unitranche financing combines senior and mezzanine debt into a single facility. Popular for acquisitions and expansions with leverage ratios of 5.0 to 5.5 times EBITDA with conservative structures and smaller loans below $50 million in size in the approximately 4.0 to approximately 5.5 EBITDA range.
- Private equity partnerships. PE firms are targeting midsize companies for bolt-on acquisitions, especially in fragmented sectors like manufacturing and green tech.
- Mezzanine debt and/or structured equity. For companies with strong cash flow but limited collateral, mezzanine loans offer 12% to 14% yields with smaller loans in the yield range of 14% to 16%. Both act to bridge valuation gaps in M&A and are anti-dilative when compared to PE.
- Covenant light structures and/or hard money lenders in volatile sectors. These offer breathing room while maintaining access to capital.
- ESG and automation premiums firms investing in sustainability or robotics command higher valuations and attract more favorable financing terms.
Growth culture isn’t a component of a company’s strategy, it is the company’s strategy. Well said Mark Shelinger. Let’s close with a few expert insights. Howard Marks reminds us, “US interest rates are not historically high, just higher than the recent past.” Joseph Wang adds, “The real economy is slowing, but AI capital expenditures are propping up growth.” Tiff Macklem cautions, “Uncertainty makes it difficult for Canadian businesses to figure out their best strategy.” Jerome Powell recently emphasized, “The downside risks to employment are rising, and if they materialize, they can do so quickly.” These voices underscore the importance of flexibility, resilience, and strategic positioning in today’s market.
Thank you for joining us on another episode of Bond Capital TV. Whether you’re an operator, investor, or adviser, staying informed is your best defense in uncertain times. We hope you found today’s insights valuable. I’m Leslie Clark and we look forward to seeing you next time.
