Amid expectations of potential interest-rate cuts by major central banks, corporate bond investors worldwide are seizing new opportunities at the beginning of the year, locking in heightened yields. The yield premiums on notes within the Bloomberg Global Credit Corporate index, encompassing both investment-grade and junk notes, tightened by one basis point on Thursday, reaching their lowest levels since late January 2022. Notably, Asia investment-grade spreads were reported to be hovering near a record low this week, according to a Bloomberg index.
This tightening in global credit spreads follows robust data indicating that the U.S. economic fourth-quarter growth exceeded forecasts. Gross domestic product expanded at an annualized rate of 3.3%, defying concerns about an impending recession.
Investors are flocking to high-grade debt at record or near-record levels in developed markets, seeking to secure elevated yields. Anticipated rate cuts by major central banks, such as the Federal Reserve and the European Central Bank, as a response to cooling inflation, are expected to further drive yields in the credit market lower.
However, the initial exuberance in credit markets at the beginning of the year is not uncommon and often tends to fade. Concerns are emerging as defaults among weaker firms rise, and developers in various countries face increasing pressures. The current tightness in credit spreads leaves minimal room for error.
Investor sentiment towards Asian debt has been tepid in the early part of 2024, primarily due to apprehensions about the Chinese economy. On Thursday, U.S. high-grade bond spreads were 11 basis points tighter than their Asian counterparts, marking the most significant difference in five months, according to available data.
