Summary

• 2024 was a year of strength for the U.S Investment Grade Primary market.
• January 2025 exceeded issuance projections and saw a dynamic issuance backdrop.
• New issue premiums at a minimum and deal execution currently in very solid shape.
• Strong demand for longer-term products and subordinate debt to capture absolute yields.
• Issuers and investors will continue to monitor the Trump cabinet policies and the Fed’s developments.
• February 2025 is likely to be a strong month as January trends continue into Q1.

 

2024 Recap

2024 was a year of strength for the U.S. IG credit market, characterized by attractive yields, solid corporate fundamentals, and supportive market dynamics. The year began with some volatility, but as inflationary pressures eased and the Federal Reserve (Fed) initiated rate cuts in September, the market stabilized. Investment-grade corporate bond yields remained attractive throughout 2024, consistently above 5% and exceeding their 10-year average by over 140 basis points. The initiation of the Fed’s rate-cutting cycle further attracted investors aiming to lock in appealing yields and extend duration. Credit spreads tightened notably during 2024, reaching multi-decade lows. Investment-grade spreads, which started the year around 104 basis points, narrowed to 77 basis points by November, levels not seen in over 25 years.

January 2025

The IG credit market opened 2025 with a dynamic issuance landscape shaped by the threat of potentially inflationary policies of the Trump administration – tariffs, tax cuts, deportation – and the Fed’s monetary policy stance. Two key economic calendar events that impacted IG credit in January were December’s CPI report issued on Jan. 15 and the Jan. 28-29 FOMC meeting. Market activity was further influenced by a shortened issuance calendar – due to New Year’s Day, MLK Day, and Former President Carter’s funeral – alongside sector-specific shocks, such as Chinese startup DeepSeek AI’s volatile impact to U.S markets. Despite these challenges, syndicate desks remained agile, adjusting strategies to accommodate a strong primary market, which exceeded expectations with $186bln in total month to date (MTD) issuance vs the $175bln expectation. Jan. 2025 fell short of the record setting January 2024 issuance of $189bln but exceeded the decades mean issuance volume of $145bln.

Issuer activity was primarily driven by refinancing needs and M&A-related transactions. Financials led the issuance volume, with corporate activity remaining moderate, and emerging markets saw limited participation. Issuers favored the 5–7 and 10–30 year tenors, with upper medium grade rated bonds dominating issuance, supported by balanced demand across the lower tiers of investment-grade credit. Issuers paid 2.4 basis points in new issue concessions with deals oversubscribed 3x, on average. January’s issuance was punctuated by notable transactions from four Yankee Banks issuing early in the month, Global Systemically Important Banks issuing by mid-month, and eight additional issuers rounding out the primary market following the Jan. 28–29 FOMC meeting at the end of the month.

 

 

 

 

CDX Investment Grade Index

The CDX Investment Grade index opened January 2025 at 49.48 and steadily moved to the MTD high of 52.10 on Jan. 13.  After reaching peak levels, the spread declined sharply, suggesting improved credit conditions. The second half of the month was marked by a series of fluctuations, with the index reaching its lowest level of 47.7 towards the end of January before a slight uptick to 48.95 at close for the month.

CDX Investment Grade: January Spread Chart

 

 

CDX Investment Grade: January Month Spread

 

The decline in the CDX Investment Grade spread suggests that credit risk perceptions improved throughout the month, likely driven by expectations of Federal Reserve rate cuts or easing macroeconomic concerns. The high levels in early January were influenced by broader market uncertainty via economic data releases, while the subsequent tightening of spreads indicates stronger investor confidence in investment-grade credit. The final stabilization suggests that the market found an equilibrium, with risk levels moderating ahead of February.

 

Bloomberg US Agg Corporate Avg OAS

The Bloomberg US Aggregate Corporate OAS exhibited a relatively stable trend throughout January 2025, with minor fluctuations. The highest observed spread for the month was 0.81, occurring on multiple days during early to mid-January. The lowest spread of 0.78 was recorded on Jan. 23 and the overall average OAS for the month settled around 0.798, reflecting a marginal tightening in spreads.

At the beginning of the month, the OAS opened at 0.80 and experienced an increase to 0.81, maintaining this level for several days. However, as we traversed mid-month, the spread declined, reaching its low of 0.78. The latter part of the month saw a slight uptick, with the OAS rebounding to 0.79, where it remained through Jan.

Bloomberg US Aggregate Corporate OAS Chart Jan. 2022 – 2025

 

These movements suggest that investment-grade credit markets maintained relative stability, with a temporary decline in spread driven by shifting market sentiment and economic data releases. The narrowing OAS indicates strong investor demand for corporate bonds, likely due to improved credit outlooks or expectations of Federal Reserve policy stability. The mid-month dip likely reflected a brief period of risk repricing influenced by inflation data and concerns over broader macroeconomic conditions.

Bloomberg US Agg Corporate YTW

The Bloomberg US Aggregate Corporate Yield-to-Worst fluctuated throughout January 2025, reflecting changing market dynamics, investor sentiment, and interest rate expectations. The highest recorded YTW for the month was 5.54% on Jan. 13, while the lowest was 5.28% on Jan. 27. The average YTW for the month was approximately 5.38%, indicating a general trend of declining yields over the latter part of January.

At the start of the month, the YTW stood at 5.33% on Jan. 2 and climbed to its monthly peak of 5.54% on Jan. 13. This increase suggested heightened credit risk perception or a shift in investor demand for corporate bonds. Following this peak, the YTW trended lower, with notable declines observed in the second half of the month. By Jan. 27, the yield had dropped to 5.28%, marking the month’s lowest level, where it remained through Jan. 31.

Bloomberg US Aggregate Corporate YTW Chart Jan. 2022 – 2025

The decline in YTW throughout January suggests improving credit conditions or growing appetite for corporate bonds, which drove yields lower. The initial spike in yields early in the month could have been a reaction to economic data or uncertainty regarding monetary policy. As the month progressed, stabilization at 5.28%-5.30% towards the end of January indicates that market participants likely found an attractive level for corporate bond yields heading into February.

U.S. Treasury

U.S. Treasury yields followed a distinct pattern of early month increases, followed by a steady decline in the latter half of the month. The 2-year Treasury yield began the month at 4.25% on Jan. 2, climbing steadily to reach its peak of 4.40% on Jan. 10. Similarly, the 10-year Treasury yield started at 4.57%, rising to a high of 4.79% on Jan. 13, while the 30-year Treasury yield increased from 4.79% at the beginning of the month to 4.98% on Jan. 13. These upward movements early in the month likely reflect market reactions to inflation concerns, economic data releases, and shifting Federal Reserve policy expectations.

The second half saw Treasury yields declined across all maturities, reflecting a shift in market sentiment, expectations of Federal Reserve rate cuts, and a potential flight to quality amid economic uncertainty. The 2-year Treasury yield fell to its lowest level of 4.17% on Jan. 24, before slightly recovering to 4.24% by Jan. 31. The 10-year Treasury yield followed a similar trajectory, declining to its lowest level of 4.52% on Jan. 27, before closing the month at 4.58%. The 30-year Treasury yield hit its low of 4.76% on Jan. 30 before slightly ticking up to 4.83% at the month-end.

Throughout January, the 2s10s and 2s30s yield spreads remained inverted, signaling continued economic uncertainty. The 2s10s spread fluctuated between -0.44% (most inverted) and -0.31% (least inverted), while the 2s30s spread ranged from -0.65% to -0.53%. Early in the month, the inversion deepened as short-term yields climbed, but as the month progressed, the inversion slightly eased with the decline in short-term yields. Notably, the steepening of the yield curve occurred around Jan. 10, only for the inversion to regress in the following weeks. By the end of January, spreads began to stabilize, laying the foundation for a favorable issuance outlook as we move into February.

Market Flow

The corporate bond market saw strong trading activity, with total volumes of ~$72.8bln, reflecting a ~104% increase in activity compared to previous periods. Investment-grade bonds dominated trading, accounting for ~$51bln in volume, with a ~103% rise in activity. Among credit ratings, Aaa-rated bonds had the lowest volume at ~$895mln, but still saw net buying of ~$47mln, indicating selective demand for the highest-quality bonds. Meanwhile, A1-A3 rated bonds led the market with ~$23bln in total volume and a strong net buying trend of ~$864mln, while Baa1-Baa3 bonds traded at similar volumes (~$24bln) but showed more neutral sentiment, with net buying of only ~$129mln.

Sector-wise, Financials led the market with ~$28.6bln in volume, showing a notable ~118% increase, and net buying of ~$583.5mln, reflecting strong investor demand. Other sectors such as Energy, Utilities, and Industrials also saw over ~100% increases in volume, signaling broad-based market activity. The Materials sector stood out with a ~161% rise in trading volume, suggesting heightened investor interest, while Consumer Discretionary and Health Care sectors lagged slightly with more measured trading activity.

In terms of maturity, mid-duration bonds (3-7 years) had the highest trading volume at ~$25.66bln, with a strong net buying trend of ~$898.1mln, indicating investor preference for intermediate-term exposure. 7-12 year bonds also saw significant demand, trading at ~$17.54bln with net buying of ~$659.9mln. However, longer-duration bonds (>12 years) had weaker net buying of ~$509.7mln, reflecting caution in taking on extended duration risk. On the shorter end, sub-1year bonds saw the highest increase in trading activity (~+148%), with net buying of ~$1.02bln, highlighting a preference for liquidity amid economic uncertainty.

Overall, the corporate bond market experienced robust investor confidence, particularly in investment-grade credit and mid-duration bonds, with Financials, Energy, and Industrials leading sectoral trading. The strong demand for short-term bonds suggests a focus on liquidity management, while moderate interest in long-duration bonds reflects caution regarding long-term rates and economic risks. The significant increase in activity across various credit tiers and maturities suggests that investors are actively positioning for changing macroeconomic conditions, inflation expectations, and potential shifts in Federal Reserve policy as markets move into the next month.

February Outlook

Looking ahead to February, the trajectory of the credit markets will continue to be sensitive to the pace of inflation and issuers’ ability to navigate financial conditions. Broadly speaking, the market will continue to monitor key economic data, but shift focus away from the Fed and towards the Trump administration’s policy agenda. The market is pricing in the likelihood of two to three rate cuts this year, likely to occur in the second half of 2025. We expect February issuers to navigate the economic calendar and enter the primary market when favorable conditions emerge throughout what we forecast to be a volatile month. The new issue calendar for February is calling for $175bln for this February vs $197.975bln that issued in the record setting month of February 2024. We expect to see similar trends in February as observed in the prior month, with issuance being concentrated on quality investment grade, the middle of the curve, and led by Financials but forecast an uptick in corporate issuance compared to January levels.

Kudos to the AmeriVet Securities team in January as we were Co-Manager on $2.6bln deal for Toyota Motor Credit Corp, the $750mm deal for Ares Strategic Income Fund, the $1.1bln deal for Verizon, the $400mm deal for Blue Owl Credit Corp, the $8bln and $3bln deal for JPMorgan, Junior Co-Manager on the $3bln deal for Citigroup, and Joint Lead on the $3bln deal for Morgan Stanley. The AmeriVet Securities sales team continues to capture large volumes of differentiated orders from Tier II & Tier III accounts on new issue deals.