Global Corporate Bond Yield Spread Sinks to Lowest Level Since 2007

Investors in global credit markets are growing increasingly comfortable accepting the slimmest yield premiums on corporate bonds seen in nearly 20 years, encouraged by signs that the global economy remains on stable footing.

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Credit spreads have tightened to just 103 basis points, marking their narrowest level since June 2007, according to a index tracking bonds across multiple currencies and credit ratings. Riskier segments are showing similar behavior, with spreads on high-yield, or junk, bonds also falling to levels not seen in years.

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Asset managers have been aggressively participating in the credit rally, driven by expectations that the Federal Reserve along with several other central banks will begin cutting interest rates.

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Lower borrowing costs could help cushion the global economy against ongoing pressures, including tariff policies from US President Donald Trump and lingering geopolitical uncertainty. Adding to the optimistic backdrop, the World Bank recently revised its outlook for global real GDP growth higher, projecting an expansion of 2.6%.

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Still, shrinking yield premiums create a dilemma for bond investors. On one hand, few want to step aside while markets remain strong. On the other, tighter spreads mean reduced compensation for taking on risk and those risks remain significant. Unpredictable shifts in US policy, along with the possibility that looser monetary conditions could reignite inflation, continue to loom over markets.

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“Complacency is probably the most dangerous thing in risk markets right now,” said Luke Hickmore, investment director for fixed income at Aberdeen Investments. “The best you can do is avoid overcommitting to the riskiest parts of the market.”

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Corporate bond issuance has surged alongside the rally. Companies have sold roughly $435 billion in debt during the first half of January alone, setting a record for the period and exceeding last year’s pace by more than 30%, according to data.

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Goldman Sachs Group Inc. added to the momentum this week by raising $16 billion in what became the largest investment-grade bond sale ever by a Wall Street bank. The deal is widely viewed as a sign that 2026 could shape up to be a historic year for corporate borrowing.‍

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Buoyant Demand

Despite the wave of new supply, investor appetite shows little sign of cooling. Strong demand has absorbed the influx of issuance, allowing credit markets to begin the year on solid footing. That strength builds on the excess returns investors have earned over US Treasuries in both investment-grade and high-yield dollar-denominated bonds over the past three years.

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Asian credit markets have been a standout performer, in part because investors are competing for a relatively limited number of deals. High-quality dollar-denominated bonds issued by Asian companies delivered returns of 8.7% in 2025, outperforming comparable US corporate debt by roughly one percentage point.

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Even so, cautionary voices are growing louder across the global credit landscape. Several major asset managers are warning that recent performance may be masking underlying vulnerabilities.

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“Strong returns in recent periods have encouraged a degree of complacency,” wrote Pacific Investment Management Co. strategists Tiffany Wilding and Andrew Balls in a research note published earlier this month.

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According to Pimco, the firm is becoming increasingly selective in how it allocates capital within credit markets. The shift reflects expectations that corporate fundamentals could weaken over time, potentially making today’s tight spreads harder to justify if economic conditions deteriorate.

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For now, robust demand and optimism around rate cuts continue to support global credit markets. But with risk premiums near historic lows, investors are being forced to weigh the appeal of continued gains against the reality that the margin for error is growing thinner.

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