Good afternoon and welcome to another episode of BondTV. I’m Leslie Clark, and we’re taking a deeper look into the evolving financial landscape as we enter the final months of 2025.
The global economy is showing modest resilience, and signs of a slowdown in the U.S. are emerging. Trade tensions, rising tariffs, and geopolitical fragmentation continue to erode business confidence and complicate planning. AI continues to grow exponentially, driving capital investment and productivity gains, but we are seeing some cracks in big tech.
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 changes in the yield curve.
Over the past year, the general trend has been a steepening of the yield curve.
This has come primarily in the form of the short end dropping while the long end rises. The exception is Japan, where the steepening has come with rising yields across all maturities.
A steepening of the curve often signals rising risk premiums as investors demand more yield. This is typically due to a combination of a strengthening economy, higher inflation expectations, and/or heavier government borrowing needs.
Collectively, the global central bank trend is one of moderation. Rates have come down from their 2022–2023 peaks and remain elevated compared to the post-2008 era.
For historical context the fifty-year average Federal Funds Rate is 4.85%. This aligns with MassMutual’s’ Cliff Noreen’s observation that, “interest rates aren’t too high, just normal.”
Let’s look at current policy rates:
Federal Reserve: 4.0%, and the next decision is December 10, 2025 Bank of Canada: 2.25%, and the next decision is December 10, 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 says interest rates are now at the low end of the central bank’s neutral range: “We think monetary policy is in about the right place to provide some support, while keeping inflation well controlled.” He says the country needs to work on long-standing productivity issues to raise incomes enough to make up for the recent bout of elevated inflation, but that tariffs are also making that harder. Based on current conditions though, lower interest rates don’t seem to be the answer, he said.
This uncertainty should continue to make decision-making difficult for businesses and policymakers.
Turning to the U.S. Treasury term premium, at 50 basis points— 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, is at 2.9%, and 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 reflects this uncertainty. Short-term yields are softening, while long-term yields are rising. This favors borrowers with shorter maturities and fixed-rate structures. Locking in for three years still feels like the right call for those sitting in the CFO chair – subject to stress testing your model of course.
For U.S. operators, the prime rate is 7.0%. Stress testing senior secured debt at 8.5% to 9.5% is prudent. Investment-grade bonds yield 4.55-5.05%, with small offerings starting at $250–$350 million.
For Canadian operators, the prime rate is 4.45%, and stress testing at 7.25% to 8.25% is recommended. Investment-grade bonds yield 3.16% to 3.75%, and near investment grade has recently priced with a 7 handle with small offerings around $300 million.
Private Credit remains the fastest to cash alternative, especially for mid-sized 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 Schellinger 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 5.0–5.5x EBITDA with conservative structures and smaller loans below $50MM in size in the ~4.0 to ~5.5 EBITDA range.
- Private Equity Partnerships PE firms are targeting mid-sized 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 12–14% yields with smaller loans in the yield range of 14% to 16%. Both act to bridge valuation gaps in M&A and are anti-dilutive when compared to PE.
- Covenant-Lite 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 Schellinger.
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 for your capital strategy in today’s market.
Thank you for joining us on another episode of Bond Capital TV. Whether you’re an operator, investor, or advisor, 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 the next time.
