Recently, Harry Goodacre, a strategist from Schroders' global investment strategy research team, pointed out that in comparison to government bonds, a narrowing spread environment may pose a challenge to the return performance of corporate bonds. However, a narrowing spread does not necessarily mean that corporate bond investors will face catastrophic results. When trading corporate bonds, there is a risk of underperforming the broader market, as bond prices will fall if spreads return to normal levels. However, for long-term investors, the default rate of investment-grade corporate bonds has averaged only 0.1% per year in the past, meaning that these bonds have a 99.9% chance of not defaulting each year. While investors may not achieve high loan returns, this does not mean that holding bonds to maturity will not outperform government bonds. Currently, overall yields are significantly higher than levels seen in the past decade, providing a larger safety margin against negative returns. Looking at a 12-month timeframe, investment-grade corporate bonds would need to increase by approximately 0.7% in yield, while high-yield bonds would need to increase by about 2% for bondholders to incur losses. Despite recent market volatility, spreads in the U.S. dollar-denominated market remain narrow compared to historical levels, with both investment-grade and high-yield bond spreads approaching their lowest points since the global financial crisis. Narrowing spreads in the past have led to weaker excess returns, as lower spreads reduce the potential for bond price appreciation. Analysis based on over 27 years of data from Schroders global also shows that narrower spreads lead to lower excess returns, though variability in results still exists. "Hit rate" analysis further confirms this trend, measuring the proportion of time when excess returns are positive. When investment-grade bond spreads are in the narrowest tenth percentile, the probability of generating positive excess returns over a 12-month period is only 12%, while the success rate for high-yield bonds is as high as 41%. However, narrowing spreads are not necessarily a bad scenario, depending on the investment timeframe and perspective. Even in the high-yield bond market, default rates may increase significantly, but the long-term average default rate is around 4%, with an average recovery rate for defaulted bonds of 40%. As inflation falls to target levels and central banks continue to cut interest rates, corporate bonds remain attractive for long-term investors seeking higher yields. The current higher yield levels provide a greater safety margin, as investment-grade bonds would need to increase by approximately 0.7% in yield, and high-yield bonds would need to increase by about 2% for bondholders to incur losses, eliminating concerns for investors worried about future price declines.