August Doldrums Settle In, but Risk Rumbling in the Near Distance
Underlying market technicals continue to support corporate bonds, but renewed risk from a weakening global economy and systemic risk from sovereign issues hover on the horizon.
Corporate bond trading desks reported that activity was brutally quiet last week as the August doldrums finally settled in. New issue activity was virtually nonexistent, and secondary trading was tough to come by, as it became increasingly difficult to source bonds and inventory on dealer desks remains near its lows. Credit spreads were largely unchanged over the course of the week, as the few issuers that experienced idiosyncratic weakness were offset by continued demand across the rest of the market.
Underlying market technicals continue to support corporate bonds, even though rumblings of renewed risk--emanating from a weakening global economy and systemic risk from sovereign issues--are sounding closer as we approach September. Treasury bonds regained some of their appeal last week, driving prices back up as the yield on the 10-year and 30-year bonds dropped 16 basis points to 1.66% and 2.77%, respectively.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.