Can blue-chip corporate bonds provide the sense of security that US Treasuries cannot? US investment-grade bond credit spreads hit their lowest level of the century.

Can blue-chip corporate bonds provide the sense of security that US Treasuries cannot? US investment-grade bond credit spreads hit their lowest level of the century.

As the Trump administration recently raised tariff threats and triggered sharp fluctuations in other asset markets, investors have continued to snap up corporate bonds, driving the financing costs of blue-chip US companies relative to US Treasuries to the lowest level this century.

According to ICE BofA data, the borrowing costs for US investment-grade corporate bonds are currently only 0.73 percentage points higher than US Treasuries of the same maturity—this is the lowest credit spread since June 1998.

Despite Trump issuing tariff threats over the Greenland issue this week, which briefly sparked heavy selling in US stocks before unexpectedly changing his stance on Wednesday, the demand for US dollar corporate bonds remains strong.

Although some US companies temporarily postponed their bond issuance plans early this week, the bond market quickly returned to normal operation. After releasing quarterly earnings reports, regional banks such as Truist Bank and PNC Financial Services successfully completed bond issuances this week.

According to LSEG data, the total amount raised in the US investment-grade bond market this year has exceeded $172 billion, the fastest issuance pace since 2020. Behind the record scale of bond issuance is the strong demand from investors for high-quality dollar-denominated debt. With US interest rates still significantly above the long-term post-financial crisis range, the overall yield remains attractive to many investors despite the extremely tight spreads.

As for the high demand for US blue-chip company bonds, industry insiders point out:

The demand for US investment-grade bonds remains very, very strong, and from the perspective of spreads, we are already near the tightest levels in history.

Major macro events are now hardly able to shake the credit market. We have experienced many political commotions that ultimately didn't materialize.

Now investors are buying for overall yield, not the spread. Current interest rate levels are especially attractive for insurance companies and pension funds needing to lock in long-term returns.

Some of the spread narrowing also reflects certain investor views: Against the backdrop of erratic Trump administration policies, US government debt itself is becoming riskier. On the other hand, amid increased political uncertainty, the long-term record of stable profits of some blue-chip companies actually provides investors with a sense of security:

Arif Husain, Global Head of Fixed Income at T. Rowe Price, said: "Credit spreads are indeed very tight, but the government they are compared with has declining institutional quality. I think this narrowing of spreads is, to some extent, an illusion."

Christian Hantel, Global Head of Corporate Bonds at Swiss firm Vontobel, said: "We are now seeing more and more clients proactively asking for allocations to corporate bonds, instead of Treasuries. Corporate fundamentals remain very robust, while at the government level, all we see is ever-increasing spending."

 

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