Bank of America strategist Yuri Seliger and others pointed out that one of the key risks facing US investment-grade credit bonds next year is that the Fed may cut interest rates far beyond current expectations, which may reduce interest rates to 2%. The strategist wrote in a report released on Friday that a sharp reduction in interest rates could reduce the 10-year US Treasury yield to the 3.0%-3.5% range, lower than the 4.25% forecast for 2026. Interest rate cuts will initially stimulate investors' demand for high-rated corporate bonds, as capital managers seek higher yields on long-term corporate bonds. However, as yield-sensitive buyers cut demand, and companies use low yields to increase financing, especially in the long term, interest spreads may widen thereafter, and the curve will steeper again.

Bank of America strategist Yuri Seliger and others pointed out that one of the key risks facing US investment-grade credit bonds next year is that the Fed may cut interest rates far beyond current expectations, which may reduce interest rates to 2%. The strategist wrote in a report released on Friday that a sharp reduction in interest rates could reduce the 10-year US Treasury yield to the 3.0%-3.5% range, lower than the 4.25% forecast for 2026. Interest rate cuts will initially stimulate investors' demand for high-rated corporate bonds, as capital managers seek higher yields on long-term corporate bonds. However, as yield-sensitive buyers cut demand, and companies use low yields to increase financing, especially in the long term, interest spreads may widen thereafter, and the curve will steeper again.