Hottest Credit Markets Since ‘07 Spur Warning on Complacency

(Bloomberg) — Global credit markets are running at their hottest in two decades, prompting some of the world’s biggest money managers, including Aberdeen Investments and Pimco, to warn against complacency about the risks.

Yield premiums on corporate debt have fallen to just over one percentage point, the least since June 2007, amid confidence about the economic outlook, a Bloomberg index of bonds across currencies and ratings shows.

That all presents a paradox. Money managers don’t want to miss out on the rally. But the run-up is also forcing them to accept a smaller compensation for risks that are swirling about — namely unpredictable US policy, geopolitical tensions and the possibility of more hidden debts like those that recently sparked sudden corporate collapses.

“Complacency should be the scariest word in risk markets right now,” said Luke Hickmore, an investment director for fixed income at Aberdeen Investments. “All you can do is not lean too hard into high-risk areas.”

Barclays Plc’s signal of risk complacency in the US debt market hit 93% on Monday, its highest level since December 2024, analyst Jigar Patel wrote in a report. The increase was driven by more bullish equities positioning, positive spread momentum, and lower realized high-yield return volatility.

US companies are seeing enough demand that they can pay relatively low yields by one key measure: those on their new bonds are just 0.013 percentage point, or 1.3 basis point, more than those on their existing bonds. That premium, known as the new issue concession, is usually higher: for all of last year, it was about 3 basis points, according to data compiled by Bloomberg. Offerings this year have attracted more than four times as many orders as there were bonds for sale, up from around 3.8 times last year, the data shows.

“While historically strong corporate fundamentals build a case for historically tight spreads, there is not much margin for error, making the US debt market very susceptible to geopolitical shocks externally, but internally as well,” said Scott Kimball, chief investment officer at Loop Capital Asset Management. “The US economic outlook is priced to perfection in credit markets.”

For now, many money managers continue to dive into the rally, in part due to the prospects of interest-rate cuts by the Federal Reserve and other central banks. Such easing could help the global economy navigate threats from US President Donald Trump’s tariffs. Earlier this week, the World Bank raised its forecast for global economic growth to 2.6% from 2.4% previously.

Policymakers must balance steps to sustain that momentum with efforts to prevent inflation from quickening again. The difficult balancing act has been thrust into the spotlight as the US Department of Justice pursues a probe of Jerome Powell. The Fed Chair has said that the threat of criminal charges stems from the central bank setting interest rates based on its best assessment, rather than following Trump’s preferences for more cuts.

“You’ve heard lots of credit managers talk about the fact that fundamentals do justify — that corporates’ balance sheets are very strong and that you are seeing reasons for credit spreads being so tight — but from our point of view, there is clearly nothing priced in terms of geopolitical” risks, said Alexandra Ralph, senior fund manager at Nedgroup Investments in London.

Still, the bullish mood in credit is also buoying riskier debt. The extra yield investors demand to hold junk notes has also dropped to the lowest in nearly two decades.

“Strong recent returns have fueled complacency,” Pacific Investment Management Co. authors Tiffany Wilding and Andrew Balls wrote in a research note this month. Pimco is becoming more selective about where it deploys its funds across credit markets due to expectation that fundamentals will deteriorate, they said.

Companies issued roughly $435 billion of bonds in the first half of January, a record for the period, and more than a third above last year’s tally at this point, according to data compiled by Bloomberg. Goldman Sachs Group Inc. on Thursday raised $16 billion with the largest investment-grade debt sale ever from a Wall Street bank.

Despite the deluge, investors are so flush with cash that spreads have got tighter and valuations higher.

“Most of the outlooks and news coverage featured the expectation of record supply and I think people read that and were positioned for that,” said Max Huefner, head of global credit and European investment grade at BlackRock Inc. “We are positioned to buy new deals. We are cautious. But in the end we need to make returns and we like carry.”

–With assistance from Tasos Vossos, Gerson Freitas Jr., Neil Chatterjee, Dan Wilchins, Brian Smith and Michael Gambale.

©2026 Bloomberg L.P.