Credit spreads haven’t looked this good since the 2000s. Can they get better?

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Subscribe to enjoy similar stories. Companies took advantage of favorable financing conditions this year to issue debt at levels not seen since the pandemic, adding cash to the balance sheet to pay for future refinancing needs and other projects. Underpinning the surge in debt issuance: credit spreads, a metric that finance chiefs watch when deciding when to pull the trigger on a bond sale.

That metric—the additional amount that companies pay above a Treasury of a similar maturity—tightened throughout 2024, ending the year at levels not seen since at least the mid-2000s. Whether debt issuance remains as strong in 2025 will depend in part on whether spreads remain attractive, advisers said. If companies issue more debt to fund acquisitions or capital investments, that could bolster issuance, as well.

As the Federal Reserve trims interest rates, total borrowing costs in the corporate bond market are expected to decline, though that could change if the central bank moves slower or faster than investors expect, causing spreads to widen. Borrowing costs in the bond market don’t always move in sync with the Fed. The central bank said this month that it will be cautious about further rate cuts.

The improvement in spreads in 2024, alongside strong debt issuance throughout the year, surprised some bankers, advisers and analysts, given earlier uncertainty about the potential for a U.S. recession, as well as a contentious presidential election. But the year also featured strong economic data, solid corporate earnings and a surge in demand from investors.