Corporate bond yields near 6% but fail to compensate for duration risk

Long-duration investment-grade corporate bonds are offering their highest yields in years, but the extra compensation for taking on decades of risk has rarely been thinner.

Investors locking money up for 10 years or more with the biggest US companies can earn just shy of 6%, according to ICE BofA index data via FactSet. The weighted average life of bonds in that index exceeds 20 years. That yield is far above the sub-5% levels that prevailed for much of the post-2008 period.

Yet the yield spread versus Treasuries on 10-plus-year investment-grade corporate bonds is only about half a percentage point higher than the spread on bonds maturing in one to three years, the data show. That gap is hovering close to the lowest level since the 2008 financial crisis, excluding a brief sharp dip during the Covid-19 pandemic. In 2022, the gap was at times a full percentage point.

"Yield-sensitive investors such as pension funds and insurers are paying a premium for longer-duration bonds," said Yuri Seliger, credit strategist at BofA Global Research. "There hasn't been as much supply of them."

The narrow gap reflects a market where institutional demand for income has compressed the term premium — the extra yield investors typically demand for bearing the risk of rate changes, inflation, or credit deterioration over long horizons. Pension funds and insurers, focused on matching long-dated liabilities, have been the primary buyers, reducing the need for issuers to offer much additional compensation.

Supply constraints mask underlying risks

The relative scarcity of long-dated corporate debt has helped keep spreads tight. But that dynamic may shift. Amazon.com's latest offering included bonds that will not mature until 2066, according to company filings, signaling that more long-dated issuance could be on the way — particularly to fund artificial-intelligence infrastructure build-outs.

"There is a growing feeling amongst the investor community that perhaps these higher yields might be here to stay," said Nathaniel Rosenbaum, JPMorgan Chase head of US high-grade credit strategy. "That could temper demand modestly until spreads widen out further."

A narrow yield gap makes sense if corporate earnings growth remains strong and borrowing stays restrained. But several factors could upend that calculus. Current profit levels may be temporarily inflated by tariff rebates and the delayed depreciation of AI-related assets like memory chips, according to the analysis. A surge in borrowing to fund AI data centers could also flood the long-term bond market.

Fiscal backdrop adds another layer of uncertainty

Bets on long-duration bonds are also a wager on macro factors beyond corporate health. The US federal deficit as a share of gross domestic product narrowed last year but remained above 5% in 2025, according to government data, and is projected to jump again. If Treasury issuance begins to overwhelm market demand, yields could rise even without the Federal Reserve hiking rates, eroding the value of bonds issued at today's levels.

For individual investors, the calculus is straightforward: yields are attractive on nearly all fixed-income assets right now, including cash. Committing to today's rates for 20 years or more means accepting risks that the market is currently pricing at a historically slim premium.

This article is for informational purposes only and does not constitute investment advice.