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Credit Insights

Credit Markets Running to Stand Still

While equity markets tumbled, credit markets worked to maintain their position.

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The equity markets were on a wild ride last week, but the credit markets only edged out slightly. Through Thursday night (the latest for which we have accurate pricing), the Morningstar Corporate Bond Index widened just 4 basis points to +205. In the equity markets, however, the roller coaster took the market up and down, with the S&P 500 ending the week down 4% from the prior week.

U.S. Bank Credit Spreads Have Been Hit Hard
Due to European sovereign debt concerns, fears of a possible global recession, and looming possible settlements from prior mortgage and foreclosure practices, U.S. bank credit spreads have remained volatile and have widened dramatically over the past few weeks. The following chart displays the increase in five-year credit spreads for the six major U.S. banks since Aug. 1. Note the relative increase in spread for  Bank of America (BAC) and  Goldman Sachs (GS) (rating: A-) compared with  Wells Fargo (WFC) (rating: A+), and  J.P. Morgan Chase (JPM) (rating: A+). The chart shows that while the bond market is shunning all U.S. banks, banks with recent negative headlines have been hit especially hard. We recently moved Bank of America to unrated as we re-evaluate the bank's legal exposure to mortgage lawsuits in light of  American International Group's (AIG) recent filing.

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

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