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Credit Insights

Large Injection of Monetary Steroids Lifts Credit Markets

In a bull market like we are experiencing now, any issuer that comes to market is likely to find a welcome reception, regardless of its credit quality.

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The corporate credit market is on fire. Offers wanted littered Wall Street and the only sellers of paper were the broker/dealers that still had some inventory. Portfolio managers continue to report receiving a flood of new money as funds pour into the fixed-income sector. For issuers for which we provide credit ratings, about $30 billion of new investment-grade bonds were issued last week, yet investors begged for more paper to put cash to work.

In the Morningstar Corporate Bond Index, the average credit spread tightened 12 basis points last week to +155, with the preponderance of tightening occurring after the Fed announced what we are terming QEOE (quantitative easing, open-ended). Credit spreads have returned to their tightest levels since July 2011 and are 22 basis points tighter than the average credit spread (9 basis points tighter than the median) over the past 12 years.

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