How Expensive Are Credit Spreads, Really?

Schroders

Research

8 Pages

Schroders examines whether today’s historically tight corporate credit spreads are truly expensive using data back to 1919. Spreads stayed tighter for decades after WWII, supported by high government debt, strong growth, near-zero defaults, policy intervention, and institutional demand—suggesting today’s natural spread level could be lower than recent history implies.

Key Takeaways

Postwar precedent matters: Credit spreads stayed below today’s levels for several decades from the late 1940s to early 1970s, challenging 25-year historical comparisons.
Defaults were exceptional: No investment-grade issuer defaulted from 1946–1969; sub-investment-grade defaults averaged 0.4% annually versus a 2.9% long-run average.
Debt may suppress spreads: U.S. debt/GDP is projected to rise from about 100% in 2025 to 156% by 2055, potentially lowering spreads through convenience-yield effects.
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