After a period of strong volatility, investment grade bond spreads have returned to where they were at the beginning of the year, although overall yields continue to be high, offering investors an attractive entry point. This is what emerges from the Bond Bulletin which this week examines the current window of opportunity to increase exposure to Investment Grade credit, also highlighting the most interesting sectors and points on the yield curve.
Fundamentals
The fundamental picture – we read in the weekly Bond Bulletin edited by the Global Fixed Income, Currency and Commodities Group team of JP Morgan Asset Management entitled “Spreads are fair, but returns are high” – continues to be solid: for the US Investment Grade credit universe, earnings growth over the last twelve months, calculated on an annual basis, should be around approximately 5/6%. Megatrends in technology, the dominance of US energy products globally and increased investments in defense contribute to the forecast of a strengthening earnings outlook. Even lagging sectors, such as automotive, are starting to stabilize. Earnings season has just begun and the first quarterly results have come mostly from high-quality banking stocks.
As of April 15, 2026, four of the six major U.S. lenders had reported solid earnings, with positive loan growth and good-quality assets. Disclosures on private credit positions have improved and indicate that actual risk is lower than previously assumed and that, as regulatory certainty improves, banks are investing in profitable, capital-intensive businesses. Volatility has worked in favor of the investment banking sector and the prospect of “higher rates for longer” supports banks’ net interest margin. The volatility of energy prices was the absolute protagonist of the market news, but the most significant changes were recorded on the physical market. The futures market is discounting expectations of gradual normalization, in the belief that oil prices are unlikely to remain high for long. Investment Grade credit segments are, in most cases, hedged by increases in energy prices and before the conflict erupted corporate balance sheets were extremely solid, with average industry operating margins close to historic highs of 15%. We believe that oil prices will not remain high long enough to endanger investment grade credit fundamentals and that earnings and revenue growth will remain in positive territory.
Quantitative evaluations
During the recent bout of volatility, US investment grade credit spreads widened by as much as 93 basis points (bps), before returning to near year-to-date levels of around 70 bps. However, a more in-depth analysis of the curve shows that spreads continue to be higher on shorter maturities. This trend in the initial part of the curve was determined by technical factors, as investors sold short-term positions to invest in new issues. We see opportunities to increase exposure to banks again in the short-term segment, where higher yields and strong fundamentals should drive further spread tightening. It should also be noted that despite the tightening of spreads, overall yields on Investment Grade bonds remain high compared to pre-conflict levels, offering attractive entry points for investors.
Technical factors
The technical picture for Investment Grade bonds has remained extremely solid since the outbreak of the conflict in Iran and we see signs of further improvement. The offer of intermediaries has grown compared to last month: recent sales have mainly involved A-rated bonds, with a reversal of trend compared to the previous week characterized by purchases of A-rated bonds and sales of BBB-rated bonds. Interest rate volatility is easing and this should push wait-and-see investors back into the market. On the demand side, subscriptions to Investment Grade bonds returned to slightly positive territory and, after several weeks of outflows, High Yield funds recorded an inflow of capital, confirming a renewed appetite for risk. Intermediaries maintain short risk positions, although their positioning is less extreme than in recent weeks.
On the supply side, new US investment grade credit issues achieved the highest average oversubscription rates since July 2025 in April, with requests averaging 4.6 times greater than available. These high levels of subscription are especially striking if we consider that since the beginning of the year the total offering has reached almost 695 billion dollars, i.e. over 21% more than the same period last year. On April 14 alone, nine operations and 28 tranches were recorded for a value of 25 billion dollars, which brought the total since the beginning of the month to approximately 37 billion dollars (data as of 14 April 2026). In particular, discounts on new issues have reduced significantly, from 5.5 bps in March to around 3 bps, a sign that buyers find the valuations appropriate and that demand is strong enough to allow issuers to adopt a more aggressive pricing policy. Overall, this data indicates that the market is absorbing supply well, that there are ample cash reserves ready to be invested, and that capital flows could increase as volatility eases.
What does this mean for bond investors?
Spreads on investment grade securities have fallen to similar levels to those at the beginning of the year, but overall returns are now significantly higher. The combination of solid fundamentals and an improving technical framework are a good opportunity to increase exposure to Investment Grade credit. We are targeting carry trade opportunities, especially on the short-term segment of the curve. While we do not underestimate volatility and downside risk, we believe the US Investment Grade market stands out for its resilience and opportunities. Furthermore, we expect spreads to remain stable as investment flows resume and earnings momentum strengthens.
