The demand for bonds is insatiable. Even risky borrowers are reaping the benefits.

Subscribe to enjoy similar stories. A new AI borrowing frenzy and lingering fears about potential defaults haven’t deterred investors hungry for bonds from U.S. companies, states and cities.

The extra yield—or spread—that investors demand to hold highly rated corporate bonds instead of ultrasafe U.S. Treasurys hit a 27-year low in late January. Spreads on speculative-grade corporate bonds dropped to an 18-year low.

In the $4 trillion municipal bond market, the spread between interest rates on triple-A and triple-B bonds is at one of its lowest points in two years. Those tight spreads are the latest sign of how bonds remain stubbornly resistant to concerns rattling other markets. Yes, the dollar has been falling, gold and silver have swung wildly, and the stock market is jittery with fears of inflated valuations and runaway artificial-intelligence spending.

But debt investors are shrugging off policy uncertainty and geopolitical strains, happily gobbling up the bonds of such companies as Oracle and Alphabet, which issued a combined $45 billion of dollar-denominated bonds this month to help fund significant investments in AI infrastructure. Investors are buying in part because “yields in the U.S. are still really high relative to most of the world’s developed bond markets," said Michael Collins, executive portfolio adviser at PGIM Fixed Income.

Investors, he added, sense that short-term interest rates set by the Federal Reserve might have more room to fall in the U.S., possibly leading to further price gains by making the coupons offered by existing bonds look more attractive. Some on Wall Street fear the tighter spreads are insufficiently compensating investors for risk and encouraging speculative borrowing. They see