The Zhitong Finance App learned that according to Mizuho Securities's analysis, the Federal Reserve may not need to cut interest rates drastically. A team of American economists from Mizuho Securities pointed out in a report released to clients on Monday that a major financial market condition indicator shows that the lending environment for US companies is already very relaxed, and the economy is still rich in large amounts of liquidity.

Although various indices and indicators help track the degree of easing or austerity in financial markets, the Mizuho team still focuses on a simple credit condition indicator, the spread on corporate bonds of major US companies.

Interest spreads are the difference between what investors earn on investment-grade corporate bonds and interest rates on “risk-free” treasury bonds. Despite sharp fluctuations in the global market in early August, interest spreads on investment-grade corporate bonds remained historically low below 100 basis points. This indicates that credit is still adequate.

The Mizuho team wrote in the report, “This not only allows the company to expand its business, but also provides management with a signal about the potential strength of the economy because interest spreads reflect risk.”

Similarly, interest spreads on high-yield or “junk” corporate bonds have recently remained low, around 330 basis points above interest rates on risk-free treasury bonds.

The team pointed out that although interest spreads rose moderately after the (July) employment report was released, most of the increase was recovered. More importantly, interest spreads on investment-grade bonds are still extremely narrow, even if bottom-up corporate profit performance varies.

The 10-year US Treasury yield was close to 3.88% on Monday, with little change. It is below the recent high and far below the peak of 5% in October last year.

US stock market performance has also increased, and investors are awaiting Federal Reserve Chairman Powell's speech at the Jackson Hole Economic Summit on Friday. The S&P 500 is up 0.97%, the Dow Jones Industrial Average is up 0.58%, and the Nasdaq Composite is up 1.39%.

Major US bond exchange-traded funds holding corporate bonds have risen sharply from a year ago. According to FactSet data, as of Monday, the US full bond market ETF (AGG.US) rose 3.16% for the whole year, the bond index ETF (LQD.US) rose 7%, and the bond index ETF high-yield corporate bond (HYG.US) rose 6.5%.