The spread of U.S. corporate bonds reached its narrowest point in four weeks late last week as tensions related to an ongoing global trade conflict began to ease.
Recent turbulence in the corporate bond market has largely been driven by uncertainty stemming from President Donald Trump’s trade strategies, particularly following the announcement of extensive tariffs on April 2. However, the situation appears to have stabilized after the president opted to suspend penalties on most nations, with China being a notable exception.
On Friday, the spreads for high-grade bonds contracted by two basis points to 104 bps, reflecting an eight basis point decrease for the week. In contrast, junk bond spreads shrank by six basis points to 367, marking a total reduction of 49 bps over the week, based on data from the ICE BofA Index.
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According to Dan Krieter, chief credit strategist at BMO Capital Markets, the narrowing of investment-grade spreads is the most significant observed since the week of the presidential election.
Market analysts attribute the tightening spreads primarily to a reduction in global trade tension last week. Additionally, they highlight economic resilience and favorable market dynamics as contributing factors.
Despite the recent easing, investors remain cautious, predicting that bond spreads may widen again in the second quarter and beyond as the ramifications of Trump’s economic choices unfold.
Hans Mikkelsen, head credit strategist at TD Ameritrade, expressed that although there may be slight narrowing in the short term, overall spreads are expected to trend wider.
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The bond market has shown unprecedented volatility in recent weeks due to the tariff controversy, according to Mikkelsen. He reported that trading volumes for investment-grade bonds have surged nearly 14% compared to the same timeframe last year, reaching record levels, while trading in junk bonds has increased by about 12%, although it remains below the historic highs set in March 2020.
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This week, analysts forecast a new high-grade bond supply of $30 billion to $35 billion, with total investment-grade issuances expected to reach between $150 billion and $160 billion in May.
Fifteen companies, including Alphabet Inc., the parent company of Google, Philip Morris International, and Procter & Gamble, are set to launch new bond offerings on Monday.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GOOGL | ALPHABET INC. | 160.10 | -1.85 | -1.15% |
| PM | PHILIP MORRIS INTERNATIONAL INC. | 168.81 | -1.38 | -0.81% |
| PG | PROCTER & GAMBLE CO. | 161.97 | +0.97 | +0.60% |
