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Credit Insights

Credit Has Run Its Course Until Greece Is Resolved

For credit spreads to tighten further, we expect the market will require three things.

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The corporate credit market started off strong last week. Bonds tightened another 6 basis points, and a prodigious amount of new issuance was brought to market. However, by the end of the week, the credit market gave up some of its earlier gains, and the Morningstar Corporate Bond Index ended the week at about a 200-basis-point spread over Treasuries.

After highlighting our opinion that credit spreads were cheap on a fundamental basis last October, we pointed out two weeks ago that we thought the preponderance of credit spread tightening had probably taken place until further clarity emerges from Europe. While we were probably a week too early in that call, we continue to think that credit spreads will level out until greater clarity surrounding Greece and the implications of whatever happens are digested by the market.

David Sekera 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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