How vulnerable are US corporate bonds to tighter Fed policy?

The onset of Fed tightening has not tended to drive up spreads on investment-grade corporate bonds much in the past. In fact, in the majority of the seven major tightening cycles since the early 1970s, spreads were lower one year after the first rate hike than they were six months before it. This helped to reduce the upward pressure on corporate bond yields from rises in “risk-free” rates. Admittedly, spreads today are a little lower than they were on average at the outset of these cycles, and risk-free rates more so. But we suspect the historical pattern will be broadly repeated in the next few years.