U.S. Investment-Grade Corporate Credit Spreads Hit Lowest Since 1998

NEW YORK (Reuters) – U.S. investment-grade corporate credit spreads hit their lowest since 1998 this week, indicating growing investor confidence in the U.S. economy. This trend aligns with a rise in risk assets, such as stocks, following the election of Republican Donald Trump as U.S. president.

The spread on the ICE BofA U.S. Corporate Index, a widely used benchmark for high-grade debt, declined to 78 basis points on Thursday, marking its lowest point since 1998. In comparison, spreads were at 86 bps at the end of last month.

Meanwhile, the ICE BofA U.S. High Yield Index, which tracks junk bonds, dipped to 273 basis points on Thursday, the lowest since 2007, down from 288 bps at the end of October, according to LSEG data released on Friday.

These shifts coincided with a sharp rally in equity markets after Trump's re-election in Tuesday's election, with expectations that his policies will favor corporations through lower taxes and reduced regulation.

The S&P 500 briefly reached the significant psychological milestone of 6,000 for the first time on Friday.

Investment-grade credit index spreads narrowed by 8 basis points over the week, marking the largest weekly narrowing since June 2023, according to Daniel Krieter, director of fixed income strategy at BMO Capital Markets.