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Credit Insights

Would Someone Please Prescribe the Market Some Lithium?

Last week's violent mood swings left investors trying to figure out what the real valuation of credit risk should be in this type of market environment.

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The markets acted like a manic depressive last week. If asset prices equated to mood swings, the global markets whipsawed violently between depression and elation, often within the same trading day. Investors panicked one day and sold assets, only to buy them back the next. 

Although the volatility in the corporate bond market may not have been quite as severe as in the equity market, it was not spared the same intraday swings. Through Thursday night (the latest for which we have accurate pricing), the Morningstar Corporate Bond Index widened 36 basis points last week to +201 after having been as wide as +217 on Wednesday. The market's bipolar episodes appeared to calm down Friday, and according to our sources, it appears that credit spreads generally tightened another couple of basis points on Friday.

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