No interest rate relief yet, but we’re this close

April 2, 2024

The Takeaway is a CoBank publication that provides practical commentary on interest rates, derivatives and capital markets activities. These insights come from the professionals in CoBank’s Treasury, Customer Derivatives and Capital Markets groups, and other leaders across the bank—people who are in the market interacting with customers, investors and other lenders seeking to understand what is driving activity.

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Interest Rates: Fed keeps interest rates steady; three rate cuts for ’24 still on the table

The Federal Open Market Committee used its March 19 – 20 meeting to decide—once again—that it would maintain the target range for its fed funds rate at 5.25 to 5.5 percent, the same range since July 2023.

The Committee cited solidly expanding economic activity and strong but moderating job growth paired with low unemployment as positive factors. But inflation remains elevated, even after easing over the past year.

The Fed is committed to achieving maximum employment and 2 percent inflation over the longer run, and confirmed its continuing expectation for three rate cuts in 2024.

“The Fed is taking the view that we have made significant improvement,” said Kiran Kini, CoBank senior vice president and treasurer. “There is some weakening in the labor market, which we saw in February’s payroll report, and which was accompanied by downward revisions to previous months’ numbers. The Fed is moving cautiously to achieve a soft landing—getting inflation back to 2 percent while keeping the economy strong and out of recession.

“They continue to hold the view that three rate cuts sometime later this year is appropriate,” Kini continued. “The Fed is clearly data dependent, but they’re willing to look past some upward movement on inflation—or bumps in the road—and saying, at least for now, that given the magnitude of improvement, we have some breathing room to normalize in taking away some of the insurance rate hikes we put in place early in 2023.”

Kini added that the Fed will likely announce a tapering of its quantitative tightening efforts—reducing its holdings in Treasury securities, agency debt and agency mortgage-backed securities by not reinvesting maturing securities—at its April/May or June meetings.

Kini also noted the markets’ expectations for rate cuts have tempered considerably.

“The market has flipped sides,” he said. “The expectation earlier this year was for six or seven 25-basis-point cuts, and now the market is pricing in a bit more than three. It seems the market has come around to buying into the Fed view.”

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Interest Rate Management: Customer hedging activity slows; volatility continues

High interest rates compounded by expectations for Fed rate cuts have slowed customer hedging activity considerably, according to Eric Nickerson, CoBank's head of Customer Derivatives.

“Several factors are behind the slowdown in customer hedging,” Nickerson said. “First, borrowers were very active in hedging for the years leading up to and during the tightening cycle that began in March 2022. Some hedged sufficiently to get through the next few years.

“There’s also less growth in borrowing going on today than over the past several years,” he continued. “Higher rates, of course, tend to inhibit borrowing. And if there’s less borrowing, there’s less interest rate risk and less interest rate risk management that needs to be done.

“All of this is compounded by the growing sentiment over the last handful of months that the Fed is done tightening and they’re going to start easing,” Nickerson concluded. “We haven’t seen it yet. It’s priced into the rate curve, which remains inverted, but how many easings are priced in continues to change. Borrowers remain hopeful that those easings will come soon and that short-term rates will come down.”

Meanwhile, along with continuing volatility, it’s a waiting game.

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Capital Markets: Could private credit financing be swinging back to the syndicated loan market?; CoBank establishes Sponsor Finance group

Private credit is a growing alternative asset class, with direct lending being one of the largest categories. Direct lending is an alternative to traditional bank loans and extended by non-bank lenders to privately held companies, often backed by private equity owners. These lenders and their general partners raise capital for these funds from a variety of investors, including traditional asset managers, pension funds and insurance companies seeking portfolio diversification.

Indeed, according to data from LCD Pitchbook and Bloomberg Intelligence, private debt funds have captured 89 percent of sponsored buyouts so far in 2024, up from 86 percent in 2023 and 61 percent in 2019.

But the pendulum could be swinging back toward the syndicated loan market, says Todd Helman, lead relationship manager for Loan Sales and Trading in CoBank’s Capital Markets group.

“Given how high rates have risen, cost of capital in 2019 was much cheaper than it is today,” Helman said. “And then during COVID-19 and a flight to strong credit, many banks opted not to participate in the sponsored buyouts on the lower end of the spectrum, which fed private debt fund growth.

“More recently in 2024, we’re seeing inflows back into the syndicated loan market,” Helman continued. “And the amount of capital that’s coming in is driving favorable terms, which we believe could swing the pendulum somewhat in the other direction and recapture some of those transactions that have tapped the private debt market.

“It’s not going to go back to 61 percent like it was in 2019, but we do think the favorable syndicated loan terms can compete with some of these buyout financings,” he concluded.

Still, the private debt market has captured the attention of CoBank, which has established a Sponsor Finance Credit group to partner with private equity groups that have an interest in rural America.

“CoBank has been lending to sponsor-backed companies for a very long time,” said Joana Bekerman, head of Sponsor Finance at CoBank. “Now, our team’s mandate is to establish and build relationships with private equity firms investing in the agribusiness sector—from crop inputs all the way through the food supply chain to the consumer’s table—and to provide capital solutions to their portfolio companies. This approach also enables us to underwrite and manage risk more consistently under one team.

“Most of the private equity firms we work with have a portfolio of companies that are active in our space,” Bekerman added. “It’s an efficient way to conduct diligence and develop incremental and new borrower relationships because they have a natural portfolio where we can offer other financial solutions and long-term partnerships for CoBank and the Farm Credit System.”

Market Focus


Farmer grain sales heading toward a game of chicken; meanwhile, it’s crickets

Continuing to hold back on sales in hopes of higher prices, grain farmers could soon be playing a game of chicken with timing and market factors hurtling directly toward them.

According to Marcus Wilhelm, western region president of CoBank’s Agribusiness Banking Group, many farmers are still sitting in comfortable cash positions waiting for prices to increase, creating an unusually quiet environment for grain sales.

“Our grain customer loan balances are at historic lows,” Wilhelm said. “At the end of February, we also had historic levels of our customers’ excess cash sitting in overnight funds, which is unheard of for this time of year. This should be their peak borrowing season, but it’s not. So, we’re waiting for the other shoe to drop when farmers do start to sell, and the cash market has to absorb a lot of bushels at once.

“We anticipate that the basis is going to widen out quite a bit,” he continued. “It’s important for our customers to make sure they’re bidding for that grain appropriately, knowing that it’s going to take some time to get it sold and shipped. There will be a point at which they physically won’t be able to move it prior to harvest. Then they’re going into harvest holding a lot of inventory and reducing their ability to take new grain.”

Wilhelm anticipates that grain companies could begin to bid off the new crop price as early as June, knowing that sales will be difficult. New crop price bidding typically takes place in the July – August time frame.

Recent CoBank Capital Markets Activity

Corteva, Inc.

Corteva, Inc.

$1B Credit Facility
Administrative Agent

California Dairies Inc.

California Dairies, Inc.

$950M Credit Facilities
Administrative Agent, Joint Lead Arranger & Sole Bookrunner

Louis Dreyfus Company NA Finance One, LLC

Louis Dreyfus Company NA Finance One, LLC

$1.15B Credit Facilities
Administrative Agent & Lead Arranger


Large wireless operators seek to renew growth through fixed wireless internet; little threat to rural operators

In efforts to rejuvenate their dwindling growth, the large wireless network operators—Verizon, T-Mobile and, more recently, AT&T—have been amping up their efforts to offer consumers fixed wireless internet as an alternative to fixed broadband.

Although this effort has been successful in growing revenues at the expense of large cable operators such as Charter and Comcast, Jeff Johnston, lead economist, Communications at CoBank, doesn’t see it as a long-term threat to cable operators or as a solution to rural broadband challenges.

“The wireless operators are desperate for growth, and pretty much everyone already has a smartphone,” Johnston said. “At the same time, they’ve built out their networks and they have excess capacity on hand. So rather than investing any new capital or developing new technologies, they’re using excess capacity on the networks they’ve built for smartphone customers.

“It’s smart,” Johnston continued. “If you have excess capacity, you might as well do something with it. So they’re bundling it with their smartphone plans and offering very attractive programs that are capturing cable operator market share.”

Johnston pointed to research conducted by Leichtman Research Group, Inc., which found that fixed wireless dominated the market in 2023, making up 104 percent of total net broadband additions among the nation’s largest providers. Fixed wireless took 90 percent of the net additions in 2022, compared to just 20 percent in 2021.

Despite the strong numbers, Johnston doesn’t see the trend as a threat to rural operators.

“The wireless companies are pursuing more urban and suburban markets,” Johnston added. “They’re not going after rural markets heavily, and I don’t believe our rural fixed broadband customers are feeling it like Comcast and Charter. Also, fixed wireless internet isn’t a long-term solution for rural areas because it tends to be significantly less reliable than fixed broadband.”

Recent CoBank Capital Markets Activity

Hunter Communications Intermediate Holdings, LLC

Hunter Communications Intermediate Holdings, LLC

$475M Credit Facility
Administrative Agent & Lead Arranger

All West Communications, Inc.

All West Communications, Inc.

$147M Credit Facilities
Administrative Agent & Lead Arranger

Cogeco Communications Finance (USA), LP

Cogeco Communications Finance (USA), LP

$475M Credit Facilities
Lead Arranger

Power & Energy

Top sidebar themes at PowerXchange: New ERA grants and grid reliability

It’s hard to keep a secret these days.

Sidebar conversations at the National Rural Electric Cooperative Association’s (NRECA) annual PowerXchange conference, which occurred March 2 – 6 in San Antonio, took on new urgency as word circulated that the USDA is beginning to issue grant awards under its Empowering Rural America (New ERA) program.

The New ERA program, which was established as part of the Inflation Reduction Act of 2022, will provide $9.7 billion to help rural America transition to clean, affordable and reliable energy.

“We learned that the USDA has begun informing some utilities of their New ERA grant awards,” said Monica Morton, managing director, Capital Markets, with CoBank. “There are still questions and uncertainty as to what New ERA looks like, how it’s distributed and when it’s distributed. But the ball seems to be moving, which will help the utilities solidify their capex budgets for the next decade.

“With the massive influx of power demand we know is coming, the question wasn’t whether we needed to spend money on renewables and grid reliability. The question was who pays for it,” Morton continued. “That’s being answered now, and utilities are getting clarity on how much they have to spend, how much money they’re going to get and how much financing they’ll need to execute on their plans.”

Morton added that CoBank stands ready to help customers with a variety of financing options to help support them through all their new development and growth plans.

NOTE: The New ERA program is distinct from the USDA’s Powering Affordable Clean Energy (PACE) program, which also provides grants and loans for rural power infrastructure. At PowerXchange, Agriculture Secretary Tom Vilsack announced the initial award of PACE grants, which are separate from New ERA grants.

Recent CoBank Capital Markets Activity

Seminole Electric Cooperative, Inc.

Seminole Electric Cooperative, Inc.

$300M Credit Facility
Administrative, Syndication & Documentation Agent & Lead Arranger

Oncor Electric Delivery Company, LLC

Oncor Electric Delivery Company, LLC

$500M Credit Facility
Syndication Agent, Joint Lead Arranger & Joint Bookrunner

Yuma Solar Energy, LLC

Yuma Solar Energy, LLC

$265M Credit Facility
Administrative Agent & Lead Arranger

DISCLAIMER: The information provided in this publication is for informational purposes only and is not to be used or considered as investment research, a proposal, or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. Companies and transactions referenced in this publication are shown for illustrative purposes only, and the provision of such information is not a recommendation or endorsement in this context. Certain information contained in this publication has been obtained or derived from third-party sources, and such information is believed to be correct and reliable but has not been independently verified. While CoBank believes that factual statements in this publication, and any assumptions on which information in this publication is based, are in each case accurate, CoBank makes no representation or warranty regarding such accuracy and shall not be responsible for any inaccuracy in such statements or assumptions. Note that CoBank may have issued, and may in the future issue, other reports that are inconsistent with or that reach conclusions different from the information set forth in this publication. CoBank is under no obligation to ensure that such other reports are brought to your attention. Furthermore, the information may not be current due to, among other things, changes in the financial markets or economic environment, and CoBank has no obligation to update any such information contained in this publication. This publication is not intended to forecast or predict future events.

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