×

No. 3 - Interest Rate Creep

The European Central Bank raised rates today highlighting the fact that even as The Fed stays on hold here, interest rates are rising around the globe. The 10-year Treasury is creeping towards 5% in response to worldwide inflation pressures. What's the effect of higher rates?

Jeff Macke says M&A has been driving the market. If rates go to higher, Jeff expects M&A to decline.



M&A Lawyer Frank Aquila, Partner at Sullivan & Cromwell joins the guys to address the concern.

He says every basis point adds to the cost of a deal, but if they creep up slowly, you don’t have to worry. Aquila adds that money is very, very cheap and liquidity is more important than interest rates.

Is there a breaking point?

If we get to 6% in 6 months than the market might dampen, explains Aquila. But short of that he expects M&A activity will remain at current levels.

Are you seeing any diminished enthusiasm?

Summer tends to slow down, he says. But the first half has been torrid and Aquila thinks the second half of the year is going to be busier still.

Why?

Because the pipeline is full and companies think because there’s so much liquidity in the market, now might be the time to strike, explains Aquila.

Why so many leaks recently?

Sarbanes Oxley made corporate boards very cautious and the M&A process slowed down, Aquila explains. If a deal takes longer to complete there’s more potential for leaks.

Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! Prefer to keep it between us? You can still send questions and comments to fastmoney@cnbc.com.

Trader disclosure: On June 6 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:Macke Owns (SWY), (ATVI), Najarian Owns (AAPL), (AMTD), (ERTS), (FMD), (NVDA), (NFI), (PGR); (.VIX), (BIIB), Bolling Owns (NMX), Gold, Bolling Is Short S&P Futures; Bolling Is Short Nasdaq Futures; Bolling Owns Natural Gas Futures; Bolling Is Short (FXI) And Owns (FXI) Puts; Pete Najarian Is The Co-Founder Of optionmonster.com