The gap between US companies’ borrowing costs and US Treasury yields has shrunk to its smallest since 1998, after a red-hot rally in global credit markets that investors warn is underplaying threats to the world economy.

The cost of borrowing for investment-grade companies in US and Eurozone credit markets is 0.75 and 0.76 percentage points above benchmark government bond yields, respectively, according to Ice BofA data. This took spreads in the two markets — a proxy for the risk of default — on Friday to their lowest levels since 1998 and 2018, respectively.

Falling trade tensions after a number of US deals with partners such as the EU have fed optimism that a worst-case scenario global trade war can be averted, improving the outlook for the corporate sector.