US and Eurozone companies are borrowing at historically low premiums over government bonds, as a surge in global credit markets drives investment-grade borrowing costs down to levels not seen in more than 20 years, the Financial Times reports.

Data from Ice BofA show that US investment-grade firms now pay 0.75 percentage points above Treasury yields, while Eurozone companies face a 0.76-point spread. These measures of default risk fell on Friday to their lowest since 1998 in the US and 2018 in the Eurozone.

The tightening follows a series of trade agreements between the US and partners including the European Union, which has eased fears of a deepening global trade war and improved corporate sentiment.

Some fund managers warned of a growing dissonance between credit and rates markets, which are pricing in five quarter-point interest rate cuts by the Federal Reserve by the end of next year, anticipating that the central bank may need to act to support a slowing US economy. Investors will be closely watching US jobs and inflation data in the coming months for early signs that the trade war could be inflicting economic damage.

However, the rapid credit rally also raises concerns about excessive market optimism. Stocks have returned to record highs even as US tariffs climb to levels not seen since the 1930s, underscoring risks that remain beneath the surface, according to the Financial Times.