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Credit Insights

Credit Spreads Fairly Valued

Credit spreads will likely enter a narrow trading range over the next few months until the markets gain further clarity on the longer term.

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The credit markets continued to weaken last week, as the Morningstar Corporate Bond Index widened 4 basis points to +150. The financial sector has widened 7 basis points and has been hit the hardest versus the industrial sector, which widened 3 basis points.

Since the beginning of May, when credit spreads were at the tightest levels of the year and the deluge of new issue bonds was just beginning, the index has widened 16 basis points. In fact, credit spreads have performed a round trip and are back to the same levels we witnessed at the beginning of the year.

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