Rally on Rumors Rings Hollow
The markets were quick to give back rumor-fueled gains last week, but at currently heightened spreads, credit risk looks attractive from a fundamental viewpoint.
Never before have we seen the markets place so much faith in the hands of European politicians. At the start of last week, credit spreads began to tighten and the equity markets took off higher. The improvement in the markets was attributed to unsubstantiated rumors that European policymakers were close to formulating a comprehensive liquidity and recapitalization plan.
But the rumors appear to be for naught, as no formal news was released over the course of the week. By the end of the week, the credit market gave up the early-week gains and closed relatively unchanged. The Morningstar Corporate Bond Index ended the week at 250 basis points over Treasuries, 1 basis point wider than last week.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.