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Credit Insights

January Spreads Tightened, but Investors Still Lost Money

Many investors tried to dodge the effects of rising interest rates as demand for shorter-duration bonds increased.

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The average spread in Morningstar's Corporate Bond Index tightened 5 basis points in January to end the month at +135. Credit spreads in the financial-services sector tightened 10 basis points, outperforming the industrial sector, which tightened 2 basis points. In our first-quarter 2013 outlook, we opined that the financials sector would outperform the industrial sector this quarter, and we continue to hold that view. 

Within the industrials sector, basic industries and technology outperformed, tightening 11 and 8 basis points, respectively. As investors poured new money into fixed-income mutual funds and exchange-traded funds and the economy continued its tepid recovery, portfolio managers were overweight with their purchases into these cyclical sectors. The energy sector underperformed in January as it widened 2 basis points, the only sector to widen over the course of the month, mainly because of shareholder activism in the sector.

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