Are We Just Whistling Past the Graveyard?
Investors in the corporate credit markets are trying their best to remain cheerful under difficult circumstances.
Many investors we have spoken with lately seem to be reluctantly bullish on corporate bonds. They point to stable to improving underlying fundamental trends in credit metrics and a strong underlying bid for bonds as many fixed-income investors continue to put cash to work. Nevertheless, they are increasingly concerned about the dire events unfolding in Europe.
Credit spreads widened slightly over the course of last week as both the Morningstar Corporate Bond Index and Morningstar Eurozone Bond Index widened 2 basis points to +218 and +241, respectively. However, the 2-basis-point move masks significant intraday volatility in the corporate bond market. The day-to-day rumors radiating from Europe regarding what the European Union will or will not do have been causing wide swings in credit spreads (especially in the banking sector). Portfolio managers are once again in the position where they need to analyze the probability and severity of systemic contagion and incorporate their view of that risk into their portfolio management decisions.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.