Spreading the Risk
One piece I've been vocal about is the idea that corporates trade inside sovereigns. You can read my previous thoughts here.
Yes we hear everyone wax lyrical that credit spreads are super narrow which is true and always a concern, but one thing everyone can agree on is spreads have actually been remarkably stable. No major spikes in credit spreads and instead where we've seen crazy volatility has been in the bond market.
Very simply, a "spread" is the intersection of 2 securities (not the property of one!). When we say "credit spreads" or "IG spreads" for example, it is the result of supply/demand dynamics of both corporate bonds AND sovereign bonds.
Historically, we assume the spread moves only because of what's happening on the corporate side, holding the sovereign side as a fixed anchor. Spreads are tight and we all think, hey corporate credit is expensive, valuations are stretched and the risk for corporates is high.
But why can't we argue the opposite, that tight spreads reflect the sovereign losing its premium rather than corporates being expensive?
Concentrating on the right things
Bloomberg Global Agg is roughly 50% US domiciled debt and it doesn't get a mention regarding any kind of concentration problem. Yet we keep hearing about concentration risk of US equity markets relative to global markets, getting lectured about tech concentration (23% of MSCI World). But where is the outrage in holding benchmark-ish holdings in bonds/credit land which is absolutely dominated by US markets and only getting bigger from here?
Mag-7 corporates are genuinely GDP+ businesses (Microsoft carries a higher credit rating than the US Treasury) while the sovereign sits at AA today. Six of the Mag-7 have active IG bond programs (excluding Tesla) so we can legitimately ask whether the supposed "risk-free rate" is the highest-rated paper in the market.
First quarter makes my point neatly, US Treasury issued roughly $570bn in net "new marketable debt" while net new public corporate supply was about half that. Really drives home that idea on spreads being driven by supply/demand with Treasury being the price-taker here instead of corporates.
| Q1 2026 US public bond supply | Gross | Net new |
|---|---|---|
| US Treasury (marketable) | $8,100bn | $574bn |
| US corporate bonds (public) | $775bn | ~$300bn |
Sources: SIFMA; US Treasury quarterly refunding (Feb 2026 estimate); Breckinridge (IG net/gross ratio applied to Q1 gross)
It's happening!
Tight spreads are telling us something about sovereign demand.
I'm not calling default cycle etc but instead ask you why should we expect credit spreads to widen from here? Why can't they keep getting tighter against sovereigns?