Wall Street’s banks are telling clients that the Federal Reserve is unlikely to raise rates when its board meets in June.
We’ve spoken to a half dozen industry sources and all said they don’t believe the Fed will raise rates until September at the soonest.
This is certain to have wide-ranging impacts: the Fed keeping rates at 0% will support M&A, and could breathe life back into an otherwise limp IPO pipeline. If the Fed decides to not increase rates in June, the market will have until September before the next prospective rate hike.
“It’s priced into the market, but not yet for M&A arbitrage funds,” said one hedge fund professional at a multi-billion dollar fund.
The source said M&A arb funds — which buy companies’ stock after a merger is announced, hoping they can cash in on shares trading beneath a deal’s premium — could be in for heady times, as debt packages are approved and regulatory hurdles are cleared, giving bigger investors a chance to cash in on deal premiums.
In a year where M&A activity has already been strong, 2015’s deal values could top all-time highs hit in 2007, when global M&A volume cracked the $US1 trillion mark. Already, 2015’s M&A is off to the best start in nearly a decade, according to statistics maintained by Dealogic.
While the M&A market has been strong, IPO activity has been weak compared to recent years
The first quarter of 2015 showcased just 34 offerings raising $US5.4 billion, making the quarter the least active since the first quarter of 2013, and the lowest price tag affiliated with the aggregate offerings since the second half of 2011.
While some market watchers wanted to put neither a date, or a name to their predictions, one was willing to do both: “At the end of the day, nobody really knows,” said Ted Koenig, president and CEO of Monroe Capital, a lender. However, he did offer this, “You won’t see a rate increase until sometime in September.”