US corporates are borrowing cheaply versus Treasuries

US companies are paying record-low premiums over Treasuries to borrow. To illustrate how investors feel so confident in corporate creditworthiness, we've visualized datasets we recently added from Cbonds and its fixed-income indices.

They show that US corporate and investment-grade credit spreads over government debt narrowed to 72 and 61 basis points respectively in August. For investment-grade bonds, that's the tightest since at least 2016.

This suggests that financial stress is low in the corporate sector, despite the unsettled global economy. (Indeed, as our second chart shows, corporate profits rebounded in the second quarter, according to BEA data.) Earlier this year, spreads had widened somewhat after Donald Trump's "“Liberation Day” tariffs were announced, but have since retreated as market sentiment improved and trade deals were signed.

The longer-term perspective shows how Cbonds' "T-Spread" blew out during the worst of the Covid-19 disruptions as investors shunned all but the least risky assets -- i.e., Treasuries. But during the period of ultra-low interest rates that followed, spreads soon compressed as investors sought to eke out a few more points of yield.

Our third chart compares Cbonds' index of corporate bonds against inflows to US bond and equity funds tracked by our partners at EPFR. US corporate bonds have gained over 6% so far in 2025, supported by net inflows to bond funds. This has contrasted with slowing inflows to US-based equity funds since “Liberation Day.” This rotation has coincided with the gains in the US corporate bond index: investors de-risked their equity exposure with stock indices nearing record highs, increasing allocations to investment-grade corporate bonds.

Watching the Federal Reserve offers another clue as to why investors have raced to lock in corporate yields that are still elevated and attractive versus recent decades: a rate cut at the Fed's Sept. 16-17 meeting has been firmly priced in following a series of weak job reports.

Cbonds' data further show that new corporate bond issuance in the US so far this year has been broadly comparable to 2024's pace. American corporations kicked off September with a strong wave of investment-grade debt sales in the week after Labor Day, underscoring strong demand for funding and investor appetite to absorb that supply.

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