Rising Rates Make Big Companies Even Richer

livemint.com:

The Federal Reserve jacked up interest rates to slow the red-hot economy. At some of the biggest and most secure companies, the moves had the opposite of the intended effect, boosting their profits and spending power. The winners from higher rates were high-quality borrowers, who locked in low interest rates around the pandemic with bonds maturing further in the future than any time this century.

Higher rates have little immediate impact on their borrowing costs—only affecting bonds when they are refinanced—while they earn more on their cash piles straight away. For the Fed, the dynamic blunts the impact of rate increases, which are meant to work in part by persuading big companies that capital is more expensive so they should pull in their horns. Companies that find they have more money thanks to higher rates can raise dividends, invest more and be more willing to pay up for the right staff, all supporting the economy.

Take Microsoft, the world’s second-most valuable company. It has more cash and short-term investments than debt, so it was never going to be threatened by higher rates. But it has also fixed its borrowing costs: It paid exactly the same interest, $492 million, in the latest quarter as a year earlier.

However, it earned substantially more on its cash and short-term investments, with the annualized rate rising to about 3.3% from 2.1%; combined with a small increase in its hoard to $111 billion, it earned $905 million in interest just in the quarter, up from $552 million. Microsoft’s experience appears to be reflected economywide. Corporate net interest payments—that is, interest paid on debt minus that received on savings—fell as interest rates rose, the opposite of what usually happens.