{"id":273231,"date":"2025-11-26T08:21:02","date_gmt":"2025-11-26T08:21:02","guid":{"rendered":"https:\/\/www.quoniam.com\/?p=273231"},"modified":"2025-11-26T10:22:36","modified_gmt":"2025-11-26T10:22:36","slug":"corporates-safe-haven","status":"publish","type":"post","link":"https:\/\/www.quoniam.com\/en\/article\/corporates-safe-haven\/","title":{"rendered":"Low spreads or safe haven \u2013 corporate bonds in 2026"},"content":{"rendered":"\n
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Current spread levels<\/strong><\/p>\n\n\n\n

After several years of rallying \u2013 interrupted by political events such as trade wars \u2013 investment grade (IG) credit spreads have reached low levels in both euros and US dollars. Figure 1 shows the trend over the past 26 years.<\/p>\n\n\n\n

Figure 1: IG credit spread levels<\/h5>\n\n\n\n
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Source: Intercontinental Exchange Inc., Quoniam Asset Management GmbH<\/figcaption><\/figure>\n\n\n\n

As the chart illustrates, euro IG credit spreads are at their lowest level since 2007. Only during the low-spread phase prior to the 2007\u20132009 financial crisis were they significantly lower. In USD, the current phase marks one of the lowest levels in this century.<\/p>\n<\/div><\/div>\n\n\n\n

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This becomes clear in Figure 2, which ranks month-end index spreads since January 2000 in order of magnitude.<\/p>\n\n\n\n

Figure 2: Monthly ranking of credit spreads since 2000 | A: Euro IG<\/h5>\n\n\n\n
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Figure 2: Monthly ranking of credit spreads since 2000 | B: USD IG<\/h5>\n\n\n\n
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The dark line indicates the current month-end (October 2025). Source: Intercontinental Exchange Inc., Quoniam Asset Management GmbH<\/figcaption><\/figure>\n<\/div><\/div>\n\n\n\n
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Euro IG credit spreads currently stand at the 19th percentile (spreads were lower in 19% of all months since January 2000, higher in 81%), while USD IG credit spreads are at the third-lowest level of this century.<\/p>\n\n\n\n

Negative credit spreads and sovereign risks<\/h5>\n\n\n\n

Low credit spreads relative to government bonds have led to several notable cases of negative spreads. For instance, short-dated bonds issued by top-rated US companies such as Microsoft or Walmart, were trading at yields below those of comparable US Treasuries. Similar examples exist for riskier countries such as France, which already have to pay a premium relative to lower-risk sovereigns.<\/p>\n\n\n\n

Is this a sign that credit spreads are too low? An alternative explanation looks at the issue from a different perspective: government bonds are increasingly being viewed as less low-risk by the market \u2013 even in developed economies. The US government shutdown has unsettled investors, as have fiscal debates in the UK and political uncertainty in France. Austria was downgraded this year, while Germany is caught in a cycle of weak growth, accelerating deindustrialisation, and ambitious spending plans.<\/p>\n\n\n\n

If the benchmark against which corporate risk premia are measured becomes riskier, the spread must inevitably narrow \u2013 without necessarily implying that corporate bonds are expensive. Likewise, in times of major crisis, investors often flee to the supposed safe havens of the highest-rated government bonds, which normally form the basis for calculating credit spreads. In such cases, an analysis focusing solely on spread levels would view corporate bonds as historically cheap.<\/p>\n\n\n\n

Pros and cons of corporate vs. government bonds<\/h5>\n\n\n\n

Corporate bonds differ fundamentally from government bonds in terms of risk. Some factors make corporate bonds riskier, while others give corporate bond investors an advantage. Key arguments for government bonds include:<\/p>\n\n\n\n