Goldman Sachs Global Investment Research points out that the 1-month and 6-month rolling correlations between USD investment-grade credit spreads and 10-year US Treasury yields have both turned positive. Since July, both have risen in tandem, putting unhedged interest rate risk corporate bonds under price pressure from both rising interest rates and widening credit spreads. For most of 2024-2025, improved growth is expected to push up Treasury yields, supporting corporate earnings and driving credit spreads narrowing, which can partially offset interest rate losses. Goldman Sachs believes that recent oil price increases, rapid yield increases, and European fiscal concerns have weakened this buffer. USD investment-grade spreads currently account for less than 15% of total yields, lower than the 2019-2021 average of approximately 45%, leaving limited room for further narrowing to offset interest rate shocks.
