Junk Debt Trades Like High-Grade as Credit Spreads Near Record Lows
US:JPM:JPMorgan Chase
US:BHP:BHP Group
EU:BN:Danone
Junk bonds are trading with risk levels close to investment-grade, as credit spreads compress to near-record lows. The gap between top-rated U.S. junk bonds (BB) and the lowest-rated investment-grade notes (BBB) is just 0.80 percentage point — the narrowest since 2019, Bloomberg data show.
Stephanie Doyle, portfolio manager at JPMorgan Asset Management, said, “Spreads are compressed everywhere. The market is really reacting to a lot of strength on the demand side.” Investment-grade spreads are now close to their tightest since the late 1990s.
Demand for Yield Fuels Rally
Despite slowing U.S. job growth and rising unemployment, investors are flooding into corporate bonds to capture yields still high by historical standards. U.S. high-grade yields averaged 4.8% this week, well above the 3.8% decade mean, though down from 5.3% at the start of 2025.
Gordon Shannon of TwentyFour Asset Management called the rally “bubbly,” citing relentless inflows into credit funds. He favors defensive plays in utilities and telecoms to guard against stress.
New Bond Issues Show Investor Appetite
Issuers are capitalizing. BHP Group sold 30-year U.S. bonds at a spread of 0.83 percentage point, just 0.06 more than its 10-year notes — among the tightest gaps on record, according to Bank of America.
In Europe, investor discipline showed through: Danone saw demand for its € hybrid bond shrink from €4.2 billion at launch to €1.25 billion at final pricing, as the coupon was fixed at 3.95% with a record-tight 67 basis point spread over senior debt.
Outlook: Spreads Could Tighten Further
Strategists at BNP Paribas expect U.S. high-grade spreads to compress further toward the 60 basis point range, noting credit continues to deliver strong returns with little perceived risk.
Still, risks loom — from Trump’s tariff shocks to geopolitical flare-ups — that could trigger a reversal in spreads. For now, however, credit markets are climbing the wall of worry.
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