S&P Global Ratings has issued a warning that the credit spread, which represents the interest rate difference between U.S. investment-grade bonds and U.S. Treasury bonds, has narrowed to its lowest level since 1998, potentially signaling early signs of a bubble.
On the 18th (local time), Bloomberg News cited a report from S&P Global Ratings, stating that such a reduced spread could obscure concerns about high borrowing costs and debt among companies. Despite facing a high-interest-rate environment, companies are being assessed by the market as having relatively low risk levels. Analysts, including Nick Kramer, noted that "this can be interpreted as the first sign of a bubble."
As of the 15th, the credit spread recorded 78 basis points (1bp = 0.01 percentage points), marking the lowest level since 1998. The high-yield spread fell to 2007 levels before widening to 266bp on the same day.
S&P Global Ratings attributed the recent low spread levels amid high interest rates and significant economic uncertainty to the profitability of U.S. companies and fundamental economic factors. The report stated, "This provides confidence that the foundation of the credit market is stable," and noted that "since the Federal Reserve began its rate-hiking cycle in 2022, there have been more credit rating upgrades than downgrades."
While the likelihood of a sharp spread widening in the short term is low, S&P Global Ratings added that the tariff increase plans of President-elect Donald Trump, who will take office in January next year, could pose potential risks to inflation and monetary policy decisions.
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