The Calm Before the Credit Cycle Turns
On the surface, spreads this tight look like a clean endorsement of corporate balance sheets. Investors are basically saying, “We’re not worried, these companies look fine.” And if you only looked at the spread chart, you might think the credit market is sitting in a sweet spot with no real stress in sight. But once you layer in what’s happening across the Treasury curve, the corporate curve, the refinancing schedule ahead, and the growing risk of unemployment drifting higher, the picture becomes a lot less simple.
The Curve Is Whispering a Different Story
Treasury data through 2025 makes the shift pretty clear. The front end has eased a lot, 6 month bills that were above 5% last year are now sitting closer to 3.8–4.0%. You can see it right in the daily Treasury data. But the long end hasn’t followed them down. 10 year yields are still hovering a little above 4%, and the 30 year is hanging out closer to 4.7%. It’s a curve that’s no longer inverted, but it’s not easing across the board either, it’s tilting.
Corporate yields show the same pattern, just amplified. August 2025 corporate spot rates tell the story cleanly: short dated corporate yields have fallen almost a full percentage point from last year, but long dated yields have gone the other direction. 30 year corporates are now near 6%, and anything past that like the 80, 90, 100 year marks sits comfortably above 6.2%. So even as spreads grind tighter, the all in cost of long term borrowing has gotten more expensive, not less.
That’s the part of the story spreads alone don’t tell you: the credit premium is tiny, but the term premium isn’t going anywhere.
The Maturity Wall And Why Unemployment Matters
Now place all of that next to the refinancing calendar. Between the end of 2025 and the end of 2026, companies have nearly $2 trillion in debt to roll, roughly a 1 trillion of it in investment grade alone, with high yield and CRE not far behind. And yes, they can refinance, the demand is there, which is exactly why spreads are this tight but they’re refinancing into a curve where the cheap money is at the front and the expensive money sits out where they’d normally issue.
And this is where rising unemployment becomes a real risk. If job losses begin to drift higher, even gradually, it feeds into slower demand, weaker revenue, and thinner margins. Companies don’t fall into distress overnight, but the earnings cushion that makes refinancing easy begins to erode. Credit spreads don’t stay serene when labor softens, they finally start paying attention.
Tight spreads don’t erase the cost of debt. They just make today’s deals look painless.
My Read on the Whole Picture
To me, this feels like one of those moments where the market’s calm is real, but it’s also fragile. Investment grade credit looks solid in the near term; balance sheets have breathing room, and refinancing isn’t a crisis. But the pricing underneath it, the shape of the curve, the higher long end cost of capital, the mountain of maturities ahead, and the early signs of labor softening doesn’t look like early cycle confidence. It looks more like late cycle complacency.
So yes, companies will likely get through this window. But investors buying at these levels aren’t being paid much if something shifts. Most of the yield today isn’t about credit risk at all, it’s about duration and supply. And when growth slows more visibly, spreads don’t have to blow out for people to feel it. They just have to move from ultra tight back to something normal.
That’s the part the spread chart leaves out and it’s the part that matters most.
