Corporate bond rush tightens global credit spread

Corporate bond investors are snapping up new issues worldwide at the start of the year, locking in elevated yields ahead of potential interest-rate cuts by major central banks. 

Yield premiums on notes in the Bloomberg Global Credit Corporate index, which includes investment-grade and junk notes, tightened one basis point on Thursday to the lowest since late January 2022. Asia investment-grade spreads were hovering near a record low this week, according to a Bloomberg index. 

“Spreads are in a range that’s pretty attractive for investors,” said Campe Goodman, a portfolio manager for Wellington Management Company. 

The move in global spreads came after data showed US economic fourth-quarter growth trounced forecasts, with gross domestic product expanding at 3.3% annualized and defying concerns about a recession.

Investors are pouring into high-grade debt at record or near-record levels in developed markets to lock in elevated yields. Major central banks like the Federal Reserve and European Central Bank are expected to cut rates this year as inflation cools, which would likely send yields in credit lower.

Still, exuberance in credit markets in the beginning of the year isn’t rare, and often fizzles. With defaults for weaker firms climbing and developers in many countries under pressure, current tight credit spreads leave little room for error.   

Investors’ sentiment about Asian debt has been weak to start 2024 amid concerns about the Chinese economy. US high-grade bond spreads on Thursday were 11 basis points tighter than their Asian peers, the most in five months, the data show.