Corporate-Bond Investors Party as Hangover Looms: Credit Weekly

Group 1 - The US high-grade corporate bond market is experiencing a tightening of spreads, reaching 0.76 percentage points, the tightest since October and close to historical highs [1] - There is a forecast for US high-grade bond sales to increase to approximately $1.6 trillion by 2026, driven by heavy bond sales for artificial intelligence investments, representing an 11% increase from this year [3] - Recent large, debt-funded acquisitions, such as Netflix's agreement to buy Warner Bros. Discovery, may further elevate bond sales as companies anticipate a more favorable regulatory environment under the current administration [4] Group 2 - Strategists at JPMorgan Chase express skepticism about the sustainability of the current strong spread performance into the new year [5] - Barclays strategists predict that spreads on US high-grade bonds could rise to around 0.90 to 0.95 percentage points by the end of next year due to selling pressure from companies [6] - The current performance of US corporate bonds is supported by minimal new sales expected for the remainder of the year, leading to increased demand for existing notes, which can lower risk premiums [7]