If you ran a corporation, wouldn’t you borrow right now if you could? That’s the conventional wisdom of U.S. companies wanting to refinance debt. Look at how cheap it is to borrow.

Though the Fed’s pursuit of tighter monetary policy up through the end of last year caused bond prices to start falling (and yields to rise), this year the central bank did a volte-face, took on a more accommodating posture and cut rates. It caught investors off guard, and led to a 12% total return in investment grade corporate bond returns this year as of September (following a rout in last year’s fourth quarter).

Barry McAlinden, an executive director and fixed income strategist at UBS, says that duration has been the primary driver of that return (longer duration bonds thrive when interest rates fall). “So the total return of the asset class is significantly higher than the relative return versus Treasurys, which is the credit spread and coupon component.” The 12% total return was in the ICE BofA Master Total Return IG index, he says (the Bloomberg Barclays Global Aggregate Corporate Total Return index was not far off). The excess return against Treasurys (as of September 20) was 4.1% for investment grade, says McAlinden.

But as yields have come off their lows, he says, credit spreads have tightened, likely because there is more confidence in risk assets after the big selloff last year.

Companies from Apple to Disney to Caterpillar helped the bond market set records in September (typically a strong month for investment grade issuance) when $434 billion in corporate bonds moved globally, according to the Financial Times (quoting Dealogic data). Lowered borrowing costs are drawing investors from all over the world to U.S. corporate issues, which dangle more prolific yields to foreign investors, especially those from countries with negative rates. “European buyers, Japanese buyers look at rates we think are very low but they are still higher than what they can get in their home markets,” says Commonwealth’s CIO Brad McMillan.

That view is shared by some of the world’s largest bond investors, says PIMCO fixed-income CIO Dan Ivascyn. In an interview in September, he remarked that his firm remained overweight in U.S. bonds because it was one of the few markets in the world that still had “room to rally.”

Other areas Ivascyn liked include agency-rated mortgage-backed securities and inflation-protected bonds. When it comes to emerging markets, Ivascyn sees selective opportunities, but adds many bonds in these nations remain sensitive to trade tensions.

There’s also been a preponderance of debt in the lower range of the investment grade rainbow as a slew of ‘BBB’ bonds hitting the market have dragged the overall credit quality down, according to Standard & Poor’s, and by the end of last year, bonds with this rating made up more than half the S&P U.S. Investment Grade Corporate Bond Index, outstripping the growth of both the high-yield and total investment grade universes from 2007 to 2018, wrote S&P’s Hong Xie in May of this year.

Standard & Poor’s says the investment grade corporate bond market grew by 194% from 2007 (pre-crisis) to 2018, while high yield grew 98%. Bonds rated ‘BBB’ grew 330%. They hit the $3 trillion mark in May.

Household name companies with ‘A’ or ‘BBB’ debt find it easy to raise money from bonds; it’s proved more attractive to them than IPOs, when the latter market is proving tepid. Companies are issuing this debt for all sorts of reasons—to refinance their maturing debt lines, to fund dividends and share buybacks, to make capital expenditures for growth and competitiveness, and to pursue merger activity.

But against the backdrop of cheap debt are possible warning signs. Morgan Stanley said in a report that given companies’ softening earnings, these extra debt loads were causing company leverage to grind upward, putting stress on gross leverage and interest coverage ratios. What’s more, the firm said (in a report penned by Vishwas Patkar and his team), that almost 40% of U.S. investment grade non-financial debt was leveraged the way junk bonds usually are. Earnings excitement in the wake of tax reform slightly obscured the leverage problem, but that’s going to be more difficult as those earnings soften in a sluggish economy.

“IG companies have not de-levered significantly and are still getting credit for assumed earnings growth, integration of acquisitions, and other ‘plans’ to de-lever,” the Morgan Stanley authors wrote.

In perhaps a nod to investor worry, companies like CVS, AT&T and Anheuser-Busch, all ‘BBB’ companies, freed up cash to pay down their borrowings, according to an August 18 Wall Street Journal story.

George Young, a partner and portfolio manager with Villere & Co., says there’s a wide spread between high quality single ‘A’ corporate bonds and Treasurys. The inverted yield curve you’ve seen in the last nine months, he says, doesn’t exist in the single ‘A’ corporate world, “and that’s generally where we buy. … Everything keys off of governments, but we don’t buy governments because the yields just aren’t quite there.” He says his firm buys bonds from two years to eight years out and is buy-and-hold oriented. “In the seven-year range you’re getting something like 80 basis points [in yield] better than you’d get with Treasurys.” Further out, at 20 years, it’s 150 basis points but you would have to commit capital longer and accept the risk. Right now, the seven-year bond is 1.60%, so with another 80 basis points you get up to 2.4% if you are willing to take a slight risk by buying a single-A bond as opposed to a government bond.

According to McAlinden, certain specific companies have fed the concern about credit: Those include General Electric, whose stock has plummeted and whose bonds are staving off junk status, as well as the utilities affected by the California wildfire crisis that could follow PG&E into junk world. “Because those specific companies are ‘BBB,’ it kind of fed the narrative about the growth of the ‘BBB’ section of the investment-grade market and the potential for more of those companies to get downgraded when you have a turn. That was more of a pressing concern in the fourth quarter [of 2018],” McAlinden says.

Lyle Minton, the CIO at Huntsville, Ala., advisory firm Keel Point, says the fourth quarter of 2018 caught some people “wrong-footed” as they anticipated further bond rate increases. If rates are going to drop, it makes more sense to be long duration in bond maturities, but given the uncertain environment with interest rates, the geopolitical situation and inflation risk, he says his firm stays near the middle of the bond duration average, close to the Bloomberg Barclays Aggregate, which is around six years.

“We’re taking agency and Treasury risk and we are diversified across the curve,” Minton says. “We’re not weighted all on the long end and not weighted all on the short end.”

One potential problem, he says, is that the oversupply of ‘BBB’-rated debt, the lowest investment grade category, could cause liquidity issues down the road since dealers cannot support the same trading they could in the past with new post-crisis capital rules. If people reduce their positions for liquidity worries, it could impact the price, Minton says.

(Bonds, like houses, tend to change in price when people ask for them, adds Young.)

Minton says that generally balance sheets are in better shape to support bond payouts, though it depends on the company and sector.

Kevin Miller, CEO and CIO at the E-Valuator Funds, believes investors should extend their bond duration at this point in time. “Get into five to 15 as far as duration. I say that based on the assumption that you’re not going to need to be liquidating the bond in the near future.”

He likes the health-care industry among other spots, since many companies are going to have to build out their infrastructures with debt to serve the health needs of the baby boomers, 10,000 of whom are retiring every day. He says an investor could consider Medtronic, for example, as a good company with a strong cash flow and a potential for resisting recession. Procter & Gamble is another standby. “In a recession, everybody still needs to clean their clothes and wash themselves and shave. [P&G is] very diversified. They have a nice yield.” Utilities are a good fallback position as well in recessions, he says.

Young describes Villere as a “middle tier” management shop, handling $2 billion, about $400 million of that in bonds, especially corporate bonds. He says there’s huge demand for investment grade bonds among institutional investors and smaller investors have to ask for more than they might want to get what they need. “We get a fraction of what we ask for, so that forces us to ask for a little bit more.”

The fund recently bought 2019 bonds for agricultural chemical company FMC; the 3.20% coupon matures in 2026. Young says the trade wars might have spooked some investors away from this company, which has Chinese suppliers, but that has only boosted the payout. “They paid a seven-year bond, 147 basis points over governments,” Young says. “It’s a good company without too much debt, but obviously the market right now is a little bit worried about how they are going to be affected by the Chinese tariffs. If they had issued this a year ago, they would have paid 130 [points] over as opposed to 147. That’s somewhat miniscule, but that’s an opportunity.” He also likes high-yield 2027 bonds from manufacturer H.B. Fuller, a 4% coupon with a yield that offers a better spread over Treasurys, as much as 300 basis points.

It should be noted that high-yield in general has benefited from wider spreads, but as those spreads tighten, observers warn they might not be as worth the risk for what you’re getting over investment grade names. High yield also tends to suffer in recessions.

While the inverted yield curve might give investors worry that recession is imminent, McMillan says not so fast. “Basically the yield curve when it inverts, typically a recession is still a year or more away. We’re only a couple of months into the inversion [as of late September] and the 10-2 curve isn’t inverted at all at the moment. So yeah we’re probably looking at a recession in the next year or so from that, but that’s by no means guaranteed.”

Commonwealth, in its 70-plus allocation models it offers to advisors, is staying within low to mid-duration bonds since the firm thinks rates will drop further. And as far as bond credit is concerned: “What you’re getting paid for going down the credit ladder is fairly low,” says McMillan. “So we’re lightening up on low credit exposure.”