Welcome back to Bond Capital TV, the first name in private capital news. I’m Leslie Clark, and today we’re looking at the capital markets as we move into the final stretch of 2025. The story is one of contrast: while AI and technology continue to fuel optimism, the broader global economy is wrestling with slower growth, rising tariffs, and geopolitical fragmentation. Operators and investors alike are navigating an environment defined by uncertainty and resilience.
Reading the Signals in the Yield Curve
Across central banks—the Federal Reserve, Bank of Canada, European Central Bank, Bank of England, and Bank of Japan—the picture is mixed. In the short run, yield curves are flattening, signaling caution and tighter policy. Over the medium term, steepening curves suggest markets are demanding higher premiums for risk. On the 30-year horizon, we’re seeing normalization back toward pre-pandemic patterns.
One new wrinkle: long-dated bond yields are being pushed higher as global investors diversify away from the US dollar and shift toward gold as a safe-haven trade. That creates added pressure for borrowers looking at longer-term maturities.
Central Banks: Moderation With Caveats
Rates today remain above the post-2008 lows but well below the 2022–23 peaks. For context, the 50-year average federal funds rate is 4.85%—meaning rates are not historically high, only high compared to the recent decade.
Current policy rates:
- Federal Reserve: 4.33% (next decision Oct 29, 2025)
- Bank of Canada: 2.50% (next decision Oct 29, 2025)
The trend points to easing across most central banks—with Japan as the outlier tightening policy. In Canada, Governor Tiff Macklem has warned that trade disputes and tariffs are already weighing on investment, particularly in manufacturing and energy. His message was clear: uncertainty is not temporary, it’s the new baseline.
Inflation, Employment & the Treasury Market
The US Treasury term premium has ticked up to 67 basis points, reflecting higher compensation for long-term risk. TIPS inflation expectations for the next decade have eased slightly to 2.29% but remain elevated. Meanwhile, the Fed’s preferred PCE index continues to run hot, complicating rate decisions.
The bond market reflects this tension. Short-term yields are softening while long-term yields remain sticky. That dynamic favors operators who can lock in shorter maturities. For US borrowers, the prime rate sits at 7.25%, and stress testing debt at 9.0%–10.5% remains prudent. In Canada, prime is 4.70%, and models should assume 6.45%–7.95%.
Financing Strategies for Mid-Market Operators
For companies with $20M–$500M in revenue, financing strategy is now a competitive edge. Six smart plays stand out:
- Asset-Based Lending (ABL): Up to 85% loan-to-value, strong fit for manufacturers upgrading equipment.
- Unitranche Financing: Blending senior and mezzanine debt, ideal for acquisitions with leverage ratios of 4.0x–5.5x EBITDA.
- Private Equity Partnerships: Particularly attractive in fragmented industries like green tech and manufacturing.
- Mezzanine Debt/Structured Equity: Anti-dilutive, with yields in the 12%–16% range.
- Covenant-Light & Hard Money Loans: For volatile sectors needing breathing room without losing access to capital.
- ESG & Automation Premiums: Companies investing in sustainability or robotics win more favorable financing terms.
Growth as a Culture, Not a Choice
As Mark Shelinger put it: “In business, you’re either growing or you’re dying.” Growth is not just revenue—it’s culture, innovation, and momentum. Companies that stagnate lose talent, fall behind competitors, and risk irrelevance.
Expert Perspectives
- Howard Marks: “US interest rates are not historically high, just higher than the recent past.”
- Joseph Wang: “The real economy is slowing, but AI capital expenditures are propping up growth.”
- Tiff Macklem: “Uncertainty makes it difficult for Canadian businesses to figure out their best strategy.”
- Jerome Powell: “The downside risks to employment are rising, and if they materialize, they can do so quickly.”
Closing
At Bond Capital TV, we believe the path forward is about resilience, flexibility, and strategic financing. Whether you’re a CFO, investor, or owner, staying informed is the best way to stay ahead. I’m Leslie Clark—thank you for joining us, and we’ll see you on the next episode.
