Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
US blue-chip companies’ borrowing costs relative to Treasuries have fallen to the lowest level this century, as investors snap up corporate bonds despite a choppy week for other assets triggered by the Trump administration’s tariff threats.
The cost of borrowing for investment-grade companies stands at 0.73 percentage points above the equivalent on US government debt, according to Ice BofA data, the lowest credit spread since June 1998.
The robust demand for dollar corporate debt comes despite President Donald Trump’s tariff threats over Greenland this week, which triggered a sharp stock market sell-off before his abrupt reversal on Wednesday.
“The demand for US investment grade is still very, very strong and we are already near all-time tights” in terms of spreads, said James Vokins, head of core income and investment grade credit at Aviva Investors.
While some US companies briefly delayed debt-raising plans earlier this week, the bond market quickly went back to business as usual. Regional banks including Truist Bank and PNC Financial Services were among those selling bonds this week after releasing quarterly results.
“Big macro events don’t move [credit] markets anymore,” said William Smith, director of credit at AllianceBernstein. “We’ve lived through a lot of political bluster that ended up not coming to fruition.”
Corporate borrowers have collectively raised more than $172bn from the US investment-grade market so far this year, the fastest pace since 2020, according to LSEG data.
Record bond sales are underpinned by robust demand for high-quality dollar debt as US interest rates remain elevated compared with post-financial crisis levels, making the overall return attractive for many investors despite wafer-thin spreads.
“Investors these days are buying the all-in yield, not the spread,” said Hans Mikkelsen, credit strategist at TD Securities, adding that the current rates are particularly attractive to insurance companies and pension funds that need to secure long-term returns.
Tighter spreads also reflect some investors’ belief that US government debt is becoming a riskier bet due to the Trump administration’s erratic policymaking.
“Credit spreads are tight, but the institutional quality of the government they are being spread against is worse,” said Arif Husain, head of global fixed income at T Rowe Price. “I think there’s something of an illusion in the tight spreads.”
Some blue-chip companies’ long record of making money offers investors a sense of comfort at a time of great political uncertainty, said Christian Hantel, head of global corporate bonds at Vontobel.
“We’re now seeing more clients asking for corporate bonds rather than government bonds,” Hantel said. “Corporate fundamentals are still in a very solid position, whereas on the government side, we’re only seeing more spending.”
Additional reporting by Emily Herbert in London