Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Are Reshaping the Corporate Bond Market in 2026
Transcript
- Lucas: The corporate bond market is having a moment this July, and it's not the kind of moment that makes headlines. But if you follow where the big money moves, this is where the story is. Luna: I saw that Goldman Sachs just locked in $70 billion in asset management deals with Verizon and Lockheed Martin. That's not pocket change. Lucas: Exactly. And those deals are specifically about managing their pension and retirement assets, but the context is that these companies are also issuing debt at yields we haven't seen since before the 2020 pandemic. Investment-grade corporate bond yields have compressed to around 4.5 percent, maybe a bit lower for the top-tier issuers. Luna: So companies are borrowing cheap, and then handing that money to Goldman to invest. Feels like a virtuous cycle for the banks. Lucas: It is, but it's also a signal about where we are in the bull market. When corporate bonds get this expensive — meaning yields this low — it usually means investors are comfortable taking on more risk because they trust the economy. But you also have to ask: are they getting paid enough for that risk? Luna: And if listener support has helped you think about your own portfolio or career decisions differently, we just want to mention that our show stays ad-free thanks to listeners who chip in at buy me a coffee dot com slash fexingo. No pressure, just a fact. Lucas: Yeah, it's a small way to keep this conversation going. So back to those bond yields — the Fed's interest on reserve balances is sitting at 3.65 percent, flat for weeks. That's the risk-free benchmark, essentially. If a top-tier company like Verizon issues a 10-year bond at, say, 4.2 percent, the spread over the risk-free rate is only about 55 basis points. Luna: That's tight. Historically, you'd want more compensation for locking up your money for a decade, even with a solid company. Lucas: Right. And that's what's interesting — the compression reflects this bull market confidence. Investors are saying, 'We don't need a big cushion because we don't expect defaults.' But the flip side is that if the economy slows, those spreads widen fast, and bondholders take a hit on price. Luna: So who's buying these bonds right now? Is it institutional money or are retail investors piling in too? Lucas: Mostly institutions — pension funds, insurance companies, sovereign wealth funds. They need the income, even if it's thin. But you're also seeing ETF flows into investment-grade bond funds pick up. The iShares iBoxx $ Investment Grade Corporate Bond ETF, ticker l q d, has seen net inflows of about $8 billion in the last quarter alone. Luna: That's a vote of confidence. But also a bit of a crowded trade, right? Everyone piling into the same bonds. Lucas: It is. And crowded trades can reverse quickly. But let's look at the specifics of the Verizon and Lockheed Martin deals, because they're telling. Verizon issued $10 billion in bonds back in March, with a 10-year tranche yielding around 4.3 percent. Lockheed followed with a $5 billion deal in April. Both were oversubscribed. Luna: Oversubscribed meaning demand exceeded supply. That's a sign investors are hungry for yield, even at those levels. Lucas: Exactly. And the money they raised isn't just for operations — it's for refinancing older, more expensive debt. Verizon had bonds from 2021 that carried coupons of 5.5 percent or higher. By replacing them with new debt at 4.3 percent, they save hundreds of millions in interest annually. Luna: That's the bull market playbook: lock in low rates while you can. And the bond market is giving them that window. Lucas: Now, the twist is that the yield curve is still inverted in the front end. The 2-year Treasury yields around 4.2 percent, while the 10-year is at 4.1 percent. So you get more yield for parking money in short-term Treasuries than for lending to the government for a decade. That's unusual. Luna: But corporate bonds are different — they have credit risk. So even with an inverted Treasury curve, a 10-year Verizon bond at 4.2 percent looks attractive compared to a 2-year Treasury at 4.2 percent, because you pick up a little extra yield and the company is solid. Lucas: That's the calculus. And it's working because the market is pricing in a soft landing — moderate growth, no recession, and the Fed staying put. The fed funds rate is effectively 3.63 percent, and the market sees it staying there through year-end. That gives companies a stable backdrop to issue debt. Luna: But what about the companies that aren't investment grade? High-yield bonds have been rallying too, but the spreads are wider. Are they also benefiting? Lucas: They are, but more selectively. The high-yield index yield is around 7.8 percent, down from 8.5 percent at the start of the year. So investors are reaching for yield, but they're being picky — avoiding sectors like energy and retail, favoring tech and healthcare. The default rate is still low, around 2 percent, so the appetite is there. Luna: And that's a hallmark of a mature bull market — investors start to take on more credit risk because they've already captured equity gains and want income. Lucas: Exactly. And that brings us back to the broader market picture. The S&P 500 is at 7,544, up 0.8 percent in the last five days. The Nasdaq is at 26,207, up 1.4 percent. Growth stocks are leading. But the bond market is telling a story of cautious optimism — not euphoria. Luna: Because if it were euphoria, you'd see speculative-grade companies issuing debt at crazy low spreads, and we're not seeing that. The discipline is still there. Lucas: Right. And I think that's healthy. The question is how long it lasts. If inflation reaccelerates or geopolitical tensions spike — like the U.S.-Iran tensions we're seeing — then bonds sell off first, equities follow. But for now, the corporate bond market is a pillar of this bull market, not a crack. Luna: So for the listener who's wondering how to play this — would you say buying investment-grade corporate bonds directly, or through an ETF, is a reasonable move here? Lucas: I think it makes sense as part of a diversified portfolio, but I'd be cautious about duration. If you buy a long-term bond fund and yields rise, you'll lose principal. A short- to intermediate-term approach might be safer. But if you're a long-term investor, locking in these yields now isn't bad — just don't expect big price appreciation from here. Luna: So less about capital gains, more about income and stability. That's a classic late-cycle play. Lucas: Exactly. And ultimately, the corporate bond market's health is a good sign for the broader economy. Companies can finance growth, refinance debt, and keep hiring. As long as that continues, this bull market has legs. But we'll be watching those spreads closely. Luna: Sounds like a good reason to keep the conversation going. Thanks for listening today.