Can blue-chip corporate bonds provide the sense of security that U.S. Treasuries lack? The credit spread of U.S. investment-grade bonds has reached a new low for this century

Amid recent tariff threats from the Trump administration that have triggered significant volatility in other asset markets, investors continue to aggressively purchase corporate bonds, driving the financing costs of U.S. blue-chip companies relative to U.S. Treasuries down to the lowest level this century.

According to ICE BofA data, the borrowing cost of U.S. investment-grade corporate bonds is currently only 0.73 percentage points higher than that of U.S. Treasuries of the same maturity, marking the lowest credit spread level since June 1998.

Despite Trump's tariff threats regarding Greenland this week, which initially led to a significant sell-off in the U.S. stock market, he suddenly reversed course on Wednesday, yet demand for dollar-denominated corporate bonds remains strong.

Although some U.S. companies briefly postponed their bond issuance plans earlier this week, the bond market quickly returned to normal operations. After releasing quarterly earnings reports, regional banks such as Truist Bank and PNC Financial Services successfully completed bond issuances this week.

According to LSEG data, the total financing in the U.S. investment-grade bond market has exceeded $172 billion this year, the fastest issuance pace since 2020. Behind the record bond issuance scale is strong demand from investors for high-quality dollar debt. Despite the extreme narrowing of spreads, the overall yield remains attractive to many investors against the backdrop of U.S. interest rates still significantly higher than the long-term range post-financial crisis.

Regarding the strong demand for U.S. blue-chip corporate bonds, industry insiders point out:

The demand for U.S. investment-grade bonds remains very, very strong, and from a spread perspective, we are approaching historically tight levels.

Major macro events are now difficult to shake the credit market. We have experienced too much political noise that ultimately did not materialize.

Investors are now buying total returns rather than spreads. The current interest rate level is particularly attractive for insurance companies and pension funds that need to lock in long-term returns.

The narrowing of some spreads also reflects the views of certain investors: against the backdrop of the unpredictable policies of the Trump administration, U.S. government debt itself is becoming riskier. On the other hand, in an environment of increasing political uncertainty, the long-term stable profit records of some blue-chip companies provide a sense of security for investors:

Arif Husain, global fixed income head at T. Rowe Price, stated: "Credit spreads are indeed tight, but the government they are compared to is experiencing a decline in institutional quality. I believe this narrowing of spreads is somewhat of an illusion."

Christian Hantel, global corporate bond head at Swiss Vontobel, said: "We are now seeing more and more clients actively requesting allocations to corporate bonds instead of government bonds. Corporate fundamentals remain very robust, while at the government level, we are only seeing increasing expenditures."