US Corporate Bond Spreads Rally to Three-Year Low, Bucking Risks

US investment-grade corporate bond spreads have narrowed to the lowest level in more than three years, a clear sign of just how bullish credit investors are even as macro and geopolitical risks mount.

Average high-grade bond spreads — the added premium over US Treasuries that investors get paid to hold riskier debt — narrowed four basis points to 83 at Friday’s close, the tightest level since September 2021, according to data compiled by Bloomberg.

Investors fleeing bonds have been initially selling Treasuries, and hanging onto corporates, which along with the Federal Reserve’s expected rate cuts and a slowdown in company bond issuance are helping to keep the spreads tight.

That’s in contrast to the rise in volatility measures including the VIX Index — a measure of Wall Street fear — and a blowout payrolls report Friday, “reflecting a market perhaps reluctant to reprice,” according to Bloomberg Intelligence analysts Noel Hebert and Sam Geier.

“Despite the myriad economic, political and geopolitical uncertainties, the asset class has been sustained by a persistent duration bid amid expectations for loosening monetary policy and lower yields,” the BI analysts wrote in a note on Monday.