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Credit Insights

Voracious Appetite for Corporate Bonds

Portfolio managers of corporate bond funds have reportedly been inundated with new money and were desperately searching for bonds to put that cash to work.

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The voracious appetite for corporate bonds continued last week, driving credit spreads tighter even in the face of some negative news. The corporate bond market paused Friday after the rumors of several imminent European downgrades leaked into the market, but for the week, the Morningstar Corporate Bond Index tightened 6 basis points to +238.

Portfolio managers of corporate bond funds have reportedly been inundated with new money and were desperately searching for bonds to put that cash to work. There were a number of new issues that priced last week, but the volume of new bonds was not enough to satiate demand. The new issues we followed were all heavily oversubscribed, priced at levels that we thought were generally on the expensive side, and still proceeded to trade higher in the secondary markets. Wall Street dealers had little to offer investors, as brokers had run their inventory down by year-end to levels we had not seen since 2002.

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