Earlier this week, I highlighted a broad measure of aggregate US corporate margins and a related metric which expresses corporate interest payments as a share of profits.

Long story short, profit margins remain very high and interest burdens remain at (or near) record lows.

That’s the legacy of the pandemic in the C-suite: Companies were afforded an unprecedented opportunity to raise prices with almost no questions asked (overall inflation was the highest in decades and consumers flush with fiscal transfer payments could absorb the hit), while the Fed’s backstop for the corporate bond market allowed blue-chip companies to term-out debt at some of the lowest borrowing costs on record.

It was a helluva juxtaposition and it was mirrored on the household side by well-to-do families who refied at record-low mortgage rates while watching the value of their stock portfolios inflect skyward.

The cherry on the sundae both for blue-chip corporates and rich households: The Fed’s belated attempt to rein in inflation pushed up the yield on savings, providing an extra windfall from money market funds and corporate cash balances.

When you think about corporate balance sheets, that’s (still) the context, or at least for high-grade borrowers, so we shouldn’t act too surprised when we notice that credit spreads for blue-chip companies are tight despite onerous geopolitical conditions and a flood of new issuance from the hyper-scalers, who’ve tapped the market for more than $200 billion since September.

The figure above shows you IG spreads. At ~75bps, investment-grade spreads are loitering near the 2007 tights, which is to say at or near historic lows.

To some, that looks perilous, particularly given dour US consumer moods and dwindling savings on Main Street.

“The resiliency in equity markets also extends to credit, where both US and European credit spreads are tighter now than before the Iran conflict began,” Deutsche Bank said this week, in a note flagging the market’s “biggest dislocations.”

“This resiliency is even more striking when you consider the warning signs building on the consumer side,” the bank went on, citing record lows on the University of Michigan sentiment gauges and the US saving rate which, you’ll politely recall, plunged in the latest BEA monthly update.

“The only times [the saving rate’s] been that low previously were a single month in 2022 when post-COVID excess savings were being wound down and right before the GFC,” Deutsche Bank warned.

That’s all true, but when it comes to credit spreads, it’s the fundamentals that count. And notwithstanding the above-mentioned hyper-scaler supply (which, it must be noted, was all oversubscribed, indicative of insatiable demand), profit margins are healthy and interest burdens light.

The figure above plots the metric mentioned here at the outset with high-grade spreads.

Again, there is a fundamental rationale here, just like there’s a fundamentals-based excuse for a stock rally which looks, on a lot of metrics, like a raging bubble.

You can draw your own conclusions. One more word on the supply point: Estimates for total US high-grade issuance this year inclusive of the hyper-scaler borrowing binge are now well north of $2 trillion.