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High-Grade Bond Spreads Can Tighten More, Invesco Says

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(Bloomberg) -- US investment-grade corporate bond spreads, already near historically tight levels, have room to narrow further, said Invesco Senior Portfolio Manager and Head of North America Investment Grade Credit Matt Brill.

Invesco predicts that the average risk premium, or spread, on US corporate bonds will set a new tight of 0.55 percentage point, Brill said at a Bloomberg Intelligence 2025 credit outlook conference. The Bloomberg US Corporate index’s average spread was 0.77 percentage point at Wednesday’s close.

Brill cited a range of factors that could help pull spreads tighter, including improved liquidity as a result of increased portfolio trading and increasingly high credit quality.

“I think we’re still having the aftershock waves of the global financial crisis as well as a little bit from COVID that is leading people to think they need to get paid a little bit more, that 75 basis points is tight,” he said. “I actually don’t think it is.”

Option-adjusted spreads for US corporate investment-grade bonds have hovered near historic lows since October. That’s happened even as investment-grade issuance in the US has totaled more than $1.46 trillion this year, the most since 2020’s record $1.75 trillion year.

“How much do you need to get paid for something that doesn’t ever really default?” Brill said, noting that IG bondholders mainly tend to sell if they panic or their client panics.

“The likelihood of any significant panic is significantly less,” he said.

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