NEW YORK (Reuters) – U.S. corporate credit spreads hit fresh multi-year lows in recent days in a sign of growing investor confidence, although some market participants worry corporate debt investors may be too optimistic given economic risks ahead.
The spread on the ICE BofA U.S. Corporate Index, a commonly used benchmark for high-grade debt, declined to 84 basis points this week, its lowest since 2005. Spreads were at 92 bps at the end of last month.
Spreads in the ICE BofA U.S. High Yield Index, which tracks so-called junk bonds, dipped to 289 basis points late last week, their lowest since March 2007. They were last at 299 bps as of Thursday, LSEG data on Friday showed.
Spreads indicate the premium investors demand to hold corporate bonds rather than safer government securities and are a gauge of market confidence.
Strong demand for bonds that are below investment grade, in particular, is seen as an optimistic signal, as investors see financial conditions as healthy and are less worried about corporate defaults.
“The probability of any type of meaningful recession is quite low, and so that’s very supportive of the credit asset class,” said Steven Oh, global head of credit and fixed income and co-head of leveraged finance at PineBridge Investments.
Still, he said there was a “level of complacency” in the market as prices did not account for the potential of a sharper economic…
