The risk premium on US investment-grade corporate bonds has narrowed to about 0.75 percentage point over comparable Treasury securities, the tightest level since July 1998. The move extends a weeks-long rally that has pushed both high-grade and high-yield spreads to or near cyclical lows, reflecting strong demand for yield as investors grow more confident about corporate balance sheets and the economic outlook. While the rally lowers funding costs for borrowers ahead of the autumn issuance season, strategists caution that spreads now offer little buffer against a turn in the credit cycle. Compressed risk premiums sit alongside mounting leverage in other corners of the market: US margin debt climbed $14.6 billion last month to a record $1.02 trillion, and federal debt outstanding has increased by roughly $1 trillion in just 48 days to $37.2 trillion. At the same time, the gap between two- and 30-year Treasury yields is at its widest since early 2022 and the dollar index is near a three-year low, suggesting some investors are becoming more wary of US sovereign risk even as they remain sanguine on corporate credit. The juxtaposition is fuelling debate over whether markets are underpricing potential shocks heading into the Federal Reserve’s September policy meeting.