JPMorgan Chase & Co. strategists led by Nathaniel Rosenbaum said in a report first released Friday that US investment-grade credit should outpace Treasuries in Q4. Their target puts the JULI index spread at 0.85 percentage point, tighter than Friday's 0.96. On that basis, the Bloomberg US Corporate Index would be around 0.73 percentage point, compared with a Friday finish of 0.82 percentage point.
They point to a mix of slowing sales at the biggest tech names and still-solid corporate earnings. The team also highlighted several "bullish" supports, like calmer interest rate swings and domestic and overseas buyers stepping in as yields find a level. As they put it, "Taking stock of it all, yields are at or close to fresh cycle highs, credit fundamentals are in very good shape and the supply & demand balance should improve throughout Q4."
When corporate bonds start outyielding Treasuries on a risk-adjusted basis, portfolios move. Market Briefs covers credit free every weekday.
JPMorgan thinks the supply picture will get more favorable into year end. The firm pegs remaining 2024 issuance near $305 billion, with the fourth quarter typically the lightest of the year. They also see room for as much as another $50 billion from hyperscalers, calling that a "drop in the bucket" next to what those tech giants have already sold globally this year. The Bloomberg US Corporate Index ended Friday at 0.82 percentage point.
On the asset-allocation scoreboard, the strategists wrote that "US HG is the best house on a bad block," arguing that today's higher yields, backed by firm economic growth, tend to be a bigger positive for corporate profits than for mortgage-backed securities or municipal bonds. If that view proves right, it helps explain why spreads could grind tighter from here.
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