Credit is becoming more accessible across the United States as U.S. Treasury yields, influencing the cost of debt like mortgages and corporate bonds, have retreated from recent highs. This easing of credit conditions is seen as a positive indicator for economic health, potentially averting a long-feared recession. Despite the Federal Reserve not reducing interest rates, investors are anticipating future rate cuts, leading to a decline in Treasury yields.
The reduced demand for additional yield on corporate bonds compared to safe Treasurys is lowering borrowing costs for businesses. This has resulted in a surge in the issuance of investment-grade corporate bonds, reaching near-record levels. Even riskier companies are re-entering the debt market, a positive sign for investors concerned about broader economic issues associated with low-rated businesses.
The shift towards a more favorable environment for borrowers is evident in the decline of secured speculative-grade bonds, indicating increased confidence among businesses. The improvement in debt market activity extends to speculative-grade corporate loans, with companies lowering interest rates on existing loans and a rising volume of loans to raise new capital.
Borrowing conditions have also improved beyond the corporate debt market. Concerns about credit scarcity for small and medium-sized businesses following the Silicon Valley Bank failure have eased, with data showing a decline in banks tightening lending standards. Consumers are increasing their borrowing, particularly in mortgage applications, driven by falling interest rates. Asset-backed securities issuance, backed by various debts like credit cards and auto loans, has experienced a surge.
Despite prolonged concerns about a recession, some analysts suggest that the economy and credit markets may be at the beginning rather than the end of an economic growth cycle.