- The global high-grade credit market is the safest its been in nearly 10 years, Bloomberg reports.
- Safer single-A bonds now make up 43.53% of the market, as investors move away from riskier triple B debt.
- Traders have been jumping into corporate debt ahead of the expected Fed pivot.
Investment-grade corporate credit isn't the risk it once was, as the market's share of single A bonds nears a decade high, Bloomberg reported.
As of late February, A-rated debt now makes up 43.54% of the global high-grade credit market, referring to bonds that are triple B or higher. The last time single A debt made up this much of the market was in early 2015, Bloomberg data shows.
Meanwhile, the group's riskiest bonds have plummeted from a 2021 high to make up 46.49% of the market. Three years prior, triple-B's accounted for over half of the index.
It's a sign that the market is normalizing from the ultra-low interest rate era that dominated in the before COVID. Near-0% rates encouraged investors to chase after risk, pulling interest away from safe assets.
Such a concentration on faultier debt spurred concern once the Federal Reserve began hiking rates in 2022, but high-grade firms have proven resilient. According to Bloomberg, this sector has notched more rating upgrades than downgrades for the past four years.
Instead, the aggressive rise in interest rates has boosted corporate credit yields, and investment-grade rates now stand at 5.4%.
Now, expectations that the Fed could soon start reversing its monetary policy has added urgency to investors to lock in these yields, causing inflows into US corporate bond funds to hit record levels. According to the Financial Times, $22.8 billion has funneled into these bonds so far this year, though that includes riskier junk bonds.
Demand is so high, the amount of extra money borrowers usually have to offer to attract buyers is at its lowest in two years.