“Why put in a floor if you don’t need to? There are so many buyers right now, you don’t need to do anything to get them,” he said. “Libor floors, at this point in time, you could argue are irrelevant.”
‘Unprecedented Risk’
Libor floors are just one of many protections that lenders have been willing to ease up on in recent years. A measure of loan covenant quality finished 2017 at its weakest level on record, suggesting lenders face “unprecedented risk” from their lack of safeguards, Moody’s Investors Service wrote in a report in April.
After seven rate hikes, Powell is giving some hints that the Fed may start to slow the pace of its tightening, as when this week he added the words "for now" to his description of the central bank’s plan to continue lifting rates. And while the Fed hikes gradually, it tends to cut rates quickly, as when it slashed rates from 4.75 percent in September 2007 to around zero in December 2008. Money managers should be reluctant to give up protections against falling rates, said DiMartino Booth.
“Investors need to wake up and demand their floors,” she said.
This article was provided by Bloomberg News.