Risk premiums, or spreads, are tight across the corporate credit curve now as money managers pile into corporate debt. Investment-grade spreads are close to their tightest since the late 1990s, and the difference between many spread levels is close to the tightest on record, according to Bloomberg index data.
Junk debt is about as safe as investment-grade now, at least according to prices in credit markets.
The gap between risk premiums on the highest-rated US junk bonds and the lowest-rated investment-grade notes was hovering around 0.80 percentage point this week, not far from the lowest since 2019. As money managers brace for the Federal Reserve to start cutting rates, they’ve grown willing to accept lower and lower yields compared with government debt.
