Corporate bond investors are seizing opportunities in the new year, securing elevated yields in anticipation of potential interest-rate cuts by major central banks.
Yield premiums on notes in the Bloomberg Global Credit Corporate index, covering investment-grade and junk notes, contracted by one basis point on Thursday, marking the lowest since late January 2022. A Bloomberg index revealed that Asia’s investment-grade spreads approached a record low this week.
“Spreads are in a range that’s pretty attractive for investors,” noted Campe Goodman, a portfolio manager at Wellington Management Company LLP.
This global tightening in spreads follows robust data indicating that US economic fourth-quarter growth surpassed expectations, with a 3.3% annualized expansion of gross domestic product, defying recession concerns.
Investors are flocking to high-grade debt in developed markets at or near record levels to capitalize on elevated yields. Anticipated rate cuts by major central banks, such as the Federal Reserve and the European Central Bank, in response to cooling inflation are expected to drive credit yields lower.
However, the enthusiasm in credit markets at the start of the year is not uncommon and often fades. Tight credit spreads amid climbing defaults for weaker firms and pressure on developers in various countries leave little margin for error.
Investor sentiment regarding Asian debt has been lackluster in early 2024, fueled by concerns about the Chinese economy. Thursday’s data revealed that US high-grade bond spreads were 11 basis points tighter than their Asian counterparts, the most significant difference in five months.
