Connect with us


How Disinflation Could Affect Company Financing

History signals that after a period of slowing inflation—also known as disinflation—debt and equity issuance expands.
The post How Disinflation Could…

Share this article:



This article was originally published by Visual Capitalist

The following content is sponsored by Citizens Commercial Banking

How Disinflation Could Affect Company Financing

The macroeconomic environment is shifting. Since the second half of 2022, the pace of U.S. inflation has been dropping.

We explore how this disinflation may affect company financing in Part 2 of our Understanding Market Trends series from Citizens.

Disinflation vs. Deflation

The last time inflation climbed above 9% and then dropped was in the early 1980’s.

Time Period March 1980-July 1983 June 2022-April 2023*
Inflation at Start of Cycle 14.8% 9.1%
Inflation at End of Cycle 2.5% 4.9%

* The June 2022-April 2023 cycle is ongoing. Source: Federal Reserve. Inflation is based on the Consumer Price Index.

A decrease in the rate of inflation is known as disinflation. It differs from deflation, which is a negative inflation rate like the U.S. experienced at the end of the Global Financial Crisis in 2009.

How might slowing inflation affect the amount of debt and equity available to companies?

Looking to History

There are many factors that influence capital markets, such as technological advances, monetary policy, and regulatory changes.

With this caveat in mind, history signals that both debt and equity issuance expand after a period of disinflation.

Equity Issuance

Companies issued low levels of stock during the ‘80s disinflation period, but issuance later rose nearly 300% in 1983.

Year Deal Value
1980 $2.6B
1981 $5.0B
1982 $3.6B
1983 $13.5B
1984 $2.5B
1985 $12.0B
1986 $24.2B
1987 $24.9B
1988 $16.9B
1989 $12.9B
1990 $13.4B
1991 $45.2B
1992 $50.3B
1993 $95.3B
1994 $63.7B
1995 $79.7B
1996 $108.7B
1997 $106.5B
1998 $97.0B
1999 $142.8B
2000 $156.5B

Source: Bloomberg. U.S. public equity issuance dollar volume that includes both initial and follow-on offerings and excludes convertibles.

Issuance grew quickly in the years that followed. Other factors also influenced issuance, such as the macroeconomic expansion, productivity growth, and the dotcom boom of the ‘90s.

Debt Issuance

Similarly, companies issued low debt during the ‘80s disinflation, but levels began to increase substantially in later years.

Year Deal Value Interest Rate
1980 $4.5B 11.4%
1981 $6.7B 13.9%
1982 $14.5B 13.0%
1983 $8.1B 11.1%
1984 $25.7B 12.5%
1985 $46.4B 10.6%
1986 $47.1B 7.7%
1987 $26.4B 8.4%
1988 $24.7B 8.9%
1989 $29.9B 8.5%
1990 $40.2B 8.6%
1991 $41.6B 7.9%
1992 $50.0B 7.0%
1993 $487.8B 5.9%
1994 $526.4B 7.1%
1995 $632.7B 6.6%
1996 $906.0B 6.4%
1997 $1.3T 6.4%
1998 $1.8T 5.3%
1999 $1.8T 5.7%
2000 $2.8T 6.0%

Source: Dealogic, Federal Reserve. Data reflects U.S. debt issuance dollar volume across several deal types including: Asset Backed Securities, U.S. Agency, Non-U.S. Agency, High Yield, Investment Grade, Government Backed, Mortgage Backed, Medium Term Notes, Covered Bonds, Preferreds, and Supranational. Interest Rate is the 10 Year Treasury Yield.

As interest rates dropped and debt capital markets matured, issuing debt became cheaper and corporations seized this opportunity.

It’s worth noting that debt issuance was also impacted by other factors, like the maturity of the high-yield debt market and growth in non-bank lenders such as hedge funds and pension funds.

Then vs. Now

Could the U.S. see levels of capital financing similar to what happened during the ‘80s disinflation? There are many economic differences between then and now.

Consider how various indicators differed 10 months into each disinflationary period.

January 1981 April 2023*
Inflation Rate
11.8% 4.9%
Inflation Expectations
Next 12 Months
9.5% 4.5%
Interest Rate
10-Yr Treasury Yield
12.6% 3.7%
Unemployment Rate
Seasonally Adjusted
7.5% 3.4%
Nominal Wage Growth
Annual, Seasonally Adjusted
9.3% 5.0%
After-Tax Corporate Profits
As Share of Gross Value Added
9.1% 13.8%

* Data for inflation expectations and interest rate is as of May 2023, data for corporate profits is as of Q4 1980 and Q1 2023. Inflation is a year-over-year inflation rate based on the Consumer Price Index. Source: Federal Reserve.

The U.S. economy is in a better position when it comes to factors like inflation, unemployment, and corporate profits. On the other hand, fears of an upcoming recession and turmoil in the banking sector have led to volatility.

What to Consider During Disinflation

Amid uncertainty in financial markets, lenders and investors may be more cautious. Companies will need to be strategic about how they approach capital financing.

  • High-quality, profitable companies could be well positioned for IPOs as investors are placing more focus on cash flow.
  • High-growth companies could face fewer options as lenders become more selective and could consider alternative forms of equity and private debt.
  • Companies with lower credit ratings could find debt more expensive as lenders charge higher rates to account for market volatility.

In uncertain times, it’s critical for businesses to work with the right advisor to find—and take advantage of—financing opportunities.

Learn more about working with Citizens.

Subscribe to Visual Capitalist

Click for Comments

You may also like


The post How Disinflation Could Affect Company Financing appeared first on Visual Capitalist.

interest rates
monetary policy

Share this article:


Why Did Bill Gates Make Sudden U-Turn On Climate Doom Narrative?

Why Did Bill Gates Make Sudden U-Turn On Climate Doom Narrative?

Microsoft co-founder, philanthropist, and climate alarmist Bill Gates has…

Share this article:

Continue Reading
Precious Metals

Time to Load up on Gold and Silver

Source: Michael Ballanger 09/22/2023

Michael Ballanger of GGM Advisory Inc. takes a look at the current state of the gold and silver market…

Share this article:

Continue Reading

UAW Strike Eventual Agreement Could Carry Inflationary Implications

Source: McAlinden Research 09/22/2023

McAlinden Research takes a look at the current implications that may come from UAW strike.The United…

Share this article:

Continue Reading