Bond Yields Hit 5.3%, but Risk Premiums Are Running Thin

Risk is on the clearance rack, but it’s not much of a bargain. Investment-grade corporate bond yields just hit 5.3%, the highest in about a year, while spreads over Treasurys remain near their tightest since the 1990s, according to ICE BofA data. Stocks aren’t offering much relief either, with the equity risk premium near lows not seen since the dot-com era.

• With the 10-year inflation break-even near 2.4%, high-grade corporates could deliver real returns around 3%, but investors are getting little extra compensation for credit risk.
• Goldman Sachs expects US investment-grade bond issuance to top $2T in 2026, while 10-year Treasury yields at 4.57% add fresh supply into an already tight market.

Fading cushion: JPMorgan Chase’s Nathaniel Rosenbaum warned spreads are “on the verge” of entering “overshoot territory,” while Pimco’s Lotfi Karoui said hyperscaler bond spreads have already widened as AI builders pile on debt. On stocks, Mercer Advisors’ Don Calcagni said investors will need earnings growth “for a number of years” to justify today’s prices.