JP Morgan "Next Year Corporate Bond Rates Single Digit... 8% for High-Grade Ratings"

U.S. investment bank JP Morgan forecasted that U.S. corporate bond yields will fall to single digits next year due to interest rate cuts and reduced default risk.

According to Bloomberg on the 7th (local time), Steve Delake, JP Morgan's Global Credit Head, said at a Bloomberg conference held in New York that "as the U.S. economy moves toward a soft landing instead of a slowdown, investment-grade corporate bonds will fall to 8% annually, and high-yield bonds will drop to 9% annually."

He predicted that although U.S. economic growth will slow, inflation will decrease to the policy target (2%), helping to avoid a recession.

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He noted, "It is the overall lower interest rates, not the spread between bonds, that are driving the corporate bond market," adding, "Companies are particularly taking advantage of the favorable capital market winds blowing after Labor Day (September 4th)."

According to Bloomberg index data, the benchmark U.S. investment-grade bond index rose 6% in November, marking the largest increase since 2008. The high-risk, high-yield bond (junk bond) index issued by low-credit rating companies rose 4.5%.

Delake said JP Morgan experts had expected the U.S. benchmark interest rate to decrease by about 0.25% per quarter six weeks ago, but now they expect it to fall by 0.25% every six weeks. He stated, "The expected interest rates for next year have dropped significantly," and added, "We believe that next year, yields on both investment-grade corporate bonds and high-yield bonds could fall to single digits."

JP Morgan expects the net issuance of high-yield bonds to remain at a level similar to this year. They evaluated that concerns about corporate financial structures and refinancing have eased significantly as companies have successfully extended corporate bond maturities due in 2024 and 2025 to 2028?2030. The default rate is expected to be below 3% for junk bonds and around 3.25% for general loans.

Delake expressed concern about market volatility caused by U.S. Treasury bond sales. He said, "What actually shakes the market could be interest rate volatility. Especially when Treasury auctions begin, the market will be significantly shaken."