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Executive Summary

Rising Interest Rates and the Debt Issue

By Roger S. Conrad on Dec. 12, 2022

Sticking to long-term guidance in face of severe near-term headwinds: That’s the difference maker for investor returns in utilities and essential services stocks this year. And it’s certain to be once again in 2023.

The greatest challenge is the most dramatic increase in interest rates since the 1980s. Debt is an indispensable pillar of financing for capital-intensive sectors like power, communications and water. And even solidly investment grade companies like WEC Energy (NYSE: WEC) have seen their cost of short-term debt increase as much as 350 basis points since the beginning of the year.

There is opportunity. Mainly, investors can lock in yields to maturity of 5 percent on investment grade company bonds and up to 10 percent for selected junk, and without risking capital to rising interest rates.

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