Skip to Content
Credit Insights

Why Should U.S. Investors Care About Spanish Finances?

We believe that if Spain or its banking system defaults, the result will be a liquidity crisis in Europe.

Mentioned: , , , , , , ,

The real action in fixed income last week was in the sovereign debt markets as opposed to the domestic corporate bond market. For the week, the Morningstar Corporate Bond Index and the Morningstar Eurozone Bond Index were unchanged to slightly tighter. The corporate bond market sold off slightly at the beginning of the week, but recovered those losses by the end of the week.

The initial round of optimism following the announcement of the Spanish bank bailout quickly turned around after Italy successfully auctioned bonds and rumors surfaced that the G-20 central banks were planning coordinated action if the situation in the eurozone deteriorated. Some investors still worried that the situation in Europe could spiral out of control; they flocked to the safety of U.S. Treasuries, driving the yield on the 10-year down to 1.58%, only about 10 basis points off its all-time lows. The action in the new issue market was front-loaded at the beginning of the week as issuers decided to hit the market Monday rather than risk that the sovereign situation could deteriorate further.

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