Europe Still Smoldering
While the initial bailout framework was enough to suppress near-term contagion fears, there continues to be enough smoke to indicate that potential fires are smoldering beneath the surface.
You know you are living in interesting times when one of the largest commodities brokers can file bankruptcy and Greece can threaten to hold a referendum to reject its bailout plan, and it still feels like a relatively quiet week.
Credit spreads widened at the beginning of last week as MF Global filed for bankruptcy and Greece threatened to hold a referendum on whether to proceed with the austerity measures as required under the latest bailout proposal. However, investors saw the widening as an opportunity to purchase bonds, as the ratio of dealer to client volume was heavily tilted toward investor purchases. Credit spreads quickly leveled out and regained some of the losses by midweek. By the end of the week, credit spreads ended 6 basis points wider as the Morningstar Corporate Bond Index rose to +217.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.