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Credit Insights

Emerging Trend in Renminbi-Denominated Debt

There is a voracious demand for bonds issued in Chinese currency in Hong Kong, and we suspect additional firms are evaluating, and will issue, renminbi-denominated bonds.

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The credit market continued to rally last week as the combination of strong economic indicators and inflows into taxable bond funds more than offset headwinds from the recent financial and environmental calamities. The Morningstar Corporate Bond Index tightened 3 basis points to +139, with financials leading the way.

Since the sovereign credit crisis last summer that pushed the Morningstar Credit Index 60 basis points wider, we have opined that credit spreads would tighten as improving economic fundamentals would lead to stronger credit metrics. We continue to expect credit spreads will generally tighten, although we caution investors that there will be an increase in issuer-specific credit widening as management teams instigate shareholder-friendly catalysts to boost their stock prices at the expense of increasing credit risk.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.