Amid recent tariff threats from the Trump administration that have triggered significant volatility in other asset markets, investors have continued to snap up corporate bonds, driving the financing costs for US blue-chip companies relative to US Treasuries down to their lowest level this century.
According to ICE BofA data, the borrowing cost for US investment-grade corporate bonds is currently only 0.73 percentage points higher than US Treasuries of the same maturity, marking the lowest credit spread level since June 1998.
Despite tariff threats from Trump regarding Greenland causing a sharp sell-off in US stocks this week, followed by a sudden reversal on Wednesday, demand for US dollar-denominated corporate bonds has remained robust.
Although some US companies briefly postponed their bond issuance plans early in the week, the bond market quickly returned to normal operations. After releasing quarterly earnings, regional banks such as Truist Bank and PNC Financial Services successfully completed their bond issuances this week.
Data from LSEG shows that the total financing volume in the US investment-grade bond market has exceeded $1.72 trillion year-to-date, representing the fastest issuance pace since 2020. Behind this record-breaking issuance volume is strong investor demand for high-quality US dollar debt. Against the backdrop of US interest rates remaining significantly higher than the post-financial crisis long-term average, the overall yield remains attractive to many investors despite the extreme narrowing of spreads.
Regarding the high demand for US blue-chip corporate bonds, industry insiders pointed out:
Demand for US investment-grade bonds remains very, very strong; from a spread perspective, we are approaching historically tight levels.
Major macroeconomic events now find it difficult to shake the credit market. We have experienced too much political noise that ultimately did not materialize.
Investors are now buying the comprehensive yield, not just the spread. The current interest rate level is particularly attractive to insurance companies and pension funds that need to lock in long-term returns.
The narrowing of some spreads also reflects the view of certain investors: against the backdrop of the Trump administration's unpredictable policies, US government debt itself is becoming riskier. On the other hand, in an environment of heightened political uncertainty, the long-term stable profit records of some blue-chip companies are instead providing investors with a sense of security:
Arif Husain, Global Head of Fixed Income at T. Rowe Price, stated: "Credit spreads are indeed tight, but they are being compared against a government whose institutional quality is deteriorating. I believe this spread narrowing is somewhat illusory."
Christian Hantel, Global Head of Corporate Bonds at Swiss Vontobel, said: "We are now seeing more and more clients proactively requesting allocations to corporate bonds instead of government bonds. Corporate fundamentals remain very solid, while at the government level, all we see is ever-increasing expenditure."
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