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Credit Insights

Accommodative Monetary Policy = Risk On

Investors took the Fed's recent statement as a green light to reach for yield as long as credit remains easy.

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The risk on trade (referring to investors' willingness to accept greater amounts of risk to reach for additional yield) is on in full force. Credit spreads continued to tighten last week as Morningstar's Corporate Bond Index tightened 2 basis points to +135. While our index is still 6 basis points wider than the lows in April 2010, we expect the market will get there soon enough.

The Federal Reserve has indicated that it will end QE2 at the end of June as it wraps up its Treasury buying program, but it signaled that it expects to maintain its accommodative (read easy money) policy. Investors took that as the green light to reach for yield as long as credit remains easy.

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