(Bloomberg) -- JPMorgan Chase & Co. isn’t expecting much in the way of US economic growth next year, but it will likely be enough for US investment-grade spreads — already near four-month tights — to narrow further and for returns to hit a five-year high by the end of 2024. 

The bank anticipates “slow but positive” US gross domestic product growth next year at 0.7%, according to a Tuesday report. It also expects the Fed funds rate to fall by 100 basis points in the second half of the year. Meanwhile, total returns for US blue-chip bonds are set to end 2024 at 12.4%, the bank said.

“This level of growth is good enough for credit,” wrote strategists led by Eric Beinstein. “Lower policy rates and yields out the curve are strongly supportive for demand as they should lead to the best total return on the asset class in five years.” 

That’s a big vote of confidence for an asset class struggling to recover from back-to-back years of losses. Investors have been burned more than once during the Federal Reserve’s latest interest-rate hiking cycle, betting on market shifts that turned out to be false starts. 

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At the moment, US blue-chip bonds are on track to return 2.65% on average this year, while junk bonds are handing investors roughly 8% gains, according to data compiled by Bloomberg.  

Meanwhile, US high-grade spreads are likely to tighten another 6 basis points from current levels to finish 2024 at 125 basis points, JPMorgan estimates. Spreads on US high-yield bonds are expected to widen next year, resulting in “decompression” between those two markets. 

New high-grade gross issuance is expected to be “flat” year-over-year at $1.2 trillion and net supply — the amount of debt sold, stripping out refinancings — will probably decline 24% to $404 billion, according to the bank’s projections. So far this year, about $1.14 trillion has been issued in the US investment-grade bond market. 

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