US credit spreads hit lowest level this century after sharp rally

{"text":[[{"start":9.59,"text":"The gap between US companies’ borrowing costs and US Treasury yields has shrunk to its smallest since 1998, after a red-hot rally in global credit markets that investors warn is underplaying threats to the world economy."}],[{"start":26.94,"text":"The cost of borrowing for investment-grade companies in US and Eurozone credit markets is 0.75 and 0.76 percentage points above benchmark government bond yields, respectively, according to Ice BofA data. This took spreads in the two markets — a proxy for the risk of default — on Friday to their lowest levels since 1998 and 2018, respectively."}],[{"start":55.34,"text":"Falling trade tensions after a number of US deals with partners such as the EU have fed optimism that a worst-case scenario global trade war can be averted, improving the outlook for the corporate sector."}],[{"start":68.98,"text":"But investors warn the sharp rally in credit is another signal, after stocks rebounded to record highs, that market optimism has become overstretched at a time when US tariffs are climbing to their highest since the 1930s and jobs data has worsened."}],[{"start":88.57000000000001,"text":"“The credit markets are again weirdly confident that the global economy is going to be just fine, and I don’t know why they are as confident as they are,” said Ben Inker, co-head of asset allocation at asset manager GMO. “You just don’t seem to be getting paid that much for taking risk.”"}],[{"start":null,"text":"

"}],[{"start":107.85000000000001,"text":"Some fund managers warned of a dissonance between credit and rates markets, which are expecting five quarter-point interest rate cuts by the Federal Reserve by the end of next year, anticipating that the central bank will have to act to support a slowing US economy. US jobs and inflation data over the coming months will be closely watched for signs that the trade war is creating economic damage."}],[{"start":135.93,"text":"“The credit market is telling you there is no growth issue, the rates market is telling you that there is a little bit of concern,” said David Zahn, head of European fixed income at Franklin Templeton. “The two aren’t quite matching up.”"}],[{"start":149.96,"text":"In a recent note, analysts at Goldman Sachs said US and European credit markets had “largely shrugged off” the different growth outlooks in a “highly correlated” rally."}],[{"start":162.21,"text":"Credit spreads tightened sharply at the end of last year as optimism grew that the Fed would be able to tame inflation without pushing the economy into recession. But they widened early this year as President Donald Trump’s “liberation day” tariff announcements sent shockwaves through global markets. A series of trade deals with Japan, the UK and the EU has eased trade-war fears."}],[{"start":190.45000000000002,"text":"US companies have taken advantage of tight spreads to borrow heavily this year, issuing the second-most highly rated debt in the first half of a year on record at $910bn — even with April’s trade war lull."}],[{"start":216.23000000000002,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1755476311_9128.mp3"}