Economy
Credit Analysts Revise Forecasts Amid Market Improvements
May
Credit strategists at major institutions such as Goldman Sachs, Barclays, and JPMorgan have revised their annual forecasts upward, driven by renewed optimism following a decisive breakthrough in U.S.-China trade negotiations. This shift has reinvigorated corporate debt markets.
Corporate Bonds Regain Appeal
The recent rally in risk assets has quickly boosted valuations for corporate bonds, triggering a wave of new issuances. Analysts such as Bradley Rogoff and Dominique Toublan from Barclays see this as an economic turning point. “The de-escalation of trade tensions represents a substantial and lasting shift,” they stated in a report published Wednesday.
Barclays Projects Tighter Spreads
Barclays now expects investment-grade bond spreads to end the year at around 95 basis points, 25 points lower than its March forecast. For speculative-grade debt, the firm projects spreads will narrow to about 325 basis points by late 2025, 75 points below previous estimates.
Trump Eases Tariff Measures
According to Barclays, Donald Trump’s proposed tariff measures are expected to be less aggressive than previously suggested by the White House. This adjustment would ease inflationary pressures and reduce negative impacts on the labor market, allowing the economic expansion to continue throughout the year.
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Goldman Sachs Confirms Shift in Risk Premiums
Goldman Sachs also updated its outlook, forecasting a 20 basis point drop in risk premiums for investment-grade bonds and a nearly 100-point tightening for high-yield bonds. “The policy dynamics that initially widened risk premiums have receded, acting as a de facto circuit breaker,” wrote Lotfi Karoui, the firm’s chief credit strategist.
JPMorgan Sees End to Most Volatile Phase
JPMorgan, for its part, expects junk bond spreads to tighten by year-end compared to its April 11 estimate. However, they may remain slightly above current levels. Nelson Jantzen, a strategist at the firm, noted that “the most turbulent phase of political disorder is likely behind us.”
Trade Tensions Still Prompt Caution
While the overall environment is improving, uncertainty around tariffs lingers, which could continue to impact employment and slow growth. Still, this week, investment-grade bond spreads tightened by eight basis points — the sharpest two-day drop since March 2023. High-yield spreads saw their biggest daily decline since November 2020.
