Goldman Strategist: Concerns Over Spread Risks in the U.S. Credit Market

On June 5, Goldman Sachs stated that strong demand from pension funds and insurance companies will support corporate bonds, shielding them from macroeconomic headwinds and record issuance levels. "Although the reality has undoubtedly become more severe, spreads have narrowed to pre-war levels," said Amanda Lynam, Goldman Sachs' Chief Credit Strategist, in the Bloomberg Industry Research Credit Edge podcast. "This is the unsettling tension currently in the credit market." In addition to rising fuel and other input costs due to the Iran war, U.S. companies are facing high inflation, increased debt financing costs, consumer pressure, and the risk of slowing economic growth in the U.S. Meanwhile, the supply of investment-grade bonds is expected to reach a historic peak this year. Goldman estimates that pension funds and insurance companies hold over $6.4 trillion in U.S. corporate credit bonds, accounting for about 40% of the market. Lynam noted that the funding level of corporate pensions has reached its highest since 2007, potentially increasing their holdings of high-quality credit bonds. Additionally, she pointed out that insurance companies' allocation to fixed-income assets is 10 percentage points lower than in 2010, indicating they still have room to increase their positions.