JPMorgan Says Corporate Bond Markets at Risk of February Gloom

JPMorgan & Chase Co. said US corporate bond spreads are at risk of widening next month, and that February is often a difficult month for the debt.

While shocks that led to costlier borrowing costs for the month in the past — such as the Covid-19 pandemic and US interest-rate hikes — are unlikely to repeat in 2024, there’s still risk looming in the month ahead, according to strategists led by Eric Beinstein.

“With spreads so tight, it is easy to see how any negative developments could push spreads wider from here,” the JPMorgan strategists wrote in a Jan. 24 note. That would cause this February to match its seasonal pattern, they wrote.

A mix of insatiable demand and heavy supply in the US investment-grade market has helped to lower risk premiums so far this year. The extra yield investors demand to hold investment-grade corporate bonds over comparable US Treasuries, on average, has declined to just 96 basis points in recent weeks, near the lowest in two years, according to data compiled by Bloomberg.

With just under $158 billion already sold this month, January’s investment-grade volume is on track to top analyst estimates of $160 billion — and could still challenge the record $175 billion seen in 2017. The bonanza of deals comes as companies look to borrow ahead of any market volatility related the upcoming US elections or a potential economic slowdown.