Given the array of perils ahead, bonds from companies with solid credit ratings are starting to look out of whack. What could punish top-shelf investment-grade bonds? Consider the lineup: an expected wave of new bond supply; the end of the Federal Reserve’s mortgage-bond buying program; and slower economic growth caused by governments tackling budget deficits, which generally winds up making deficits even larger. Citigroup credit researchers led by Mikhail Foux outlined the bearish case against corporates in a recent note to clients. “At the very least,” they wrote, “one should get a little worried.” At a premium price of $1.06 on the dollar, investment-grade bonds yield a mere 1.76 percentage points more than US Treasuries, according to Bank of America Merrill Lynch data. That may look appropriate for their rank on the ladder of risk, beneath ultrasafe Treasury bonds and above risky low-rated corporate debt better known as junk, but this gap between interest rates sits below the five-year average of 2.14 percentage points, according to the rating agency Standard & Poor’s. In other words, investors look roughly as confident about top-quality corporate credit as they were at the peak of the credit bubble.

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