Something I've been banging the drum on: interest rate risk doesn't just disappear — it morphs.
Right now we're watching it shift into credit/spread risk in real time. High-grade corporate debt, the stuff that's supposed to be boring and safe, is suddenly getting side-eyed by investors.
Why? Record borrowing levels + sticky inflation = spreads widening. When rates were pinned at zero, everyone treated investment-grade bonds like cash with a coupon. Now reality is kicking in.
The math is simple: if a company borrowed heavily at low rates and now has to refinance or roll debt in a higher-rate world, their balance sheet gets squeezed. Add inflation pressure on margins, and suddenly that AAA doesn't feel so bulletproof.
This is textbook late-cycle behavior. The cracks don't show up in Treasuries first — they show up in credit markets. Spreads widen, liquidity thins, and the "safe" stuff stops being a safe haven.
If you're overweight corporate bonds thinking rates have peaked so you're fine, you might be solving yesterday's problem. The next risk isn't duration — it's whether the borrower can actually pay you back.
Watch the spreads. They're telling you something.
Right now we're watching it shift into credit/spread risk in real time. High-grade corporate debt, the stuff that's supposed to be boring and safe, is suddenly getting side-eyed by investors.
Why? Record borrowing levels + sticky inflation = spreads widening. When rates were pinned at zero, everyone treated investment-grade bonds like cash with a coupon. Now reality is kicking in.
The math is simple: if a company borrowed heavily at low rates and now has to refinance or roll debt in a higher-rate world, their balance sheet gets squeezed. Add inflation pressure on margins, and suddenly that AAA doesn't feel so bulletproof.
This is textbook late-cycle behavior. The cracks don't show up in Treasuries first — they show up in credit markets. Spreads widen, liquidity thins, and the "safe" stuff stops being a safe haven.
If you're overweight corporate bonds thinking rates have peaked so you're fine, you might be solving yesterday's problem. The next risk isn't duration — it's whether the borrower can actually pay you back.
Watch the spreads. They're telling you something.