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Credit Insights

Equities Rally, but Corporate Credit Spreads Stay Range-Bound

Interest rates have generally been on an uptrend since the beginning of May, and idiosyncratic risk seems to be rising from increased shareholder activism and aggressive share-buyback programs.

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While the S&P 500 reaches new all-time highs, credit spreads in the corporate bond market have not rallied to anywhere near the same degree. The average spread in the Morningstar Corporate Bond Index ended last week at +144 basis points, still well wide of the tight level reached in the middle of May.

We think there are two main reasons that credit spreads have not fully participated in the appetite for risk: interest rates have generally been on an uptrend since the beginning of May, and idiosyncratic risk seems to be rising from increased shareholder activism and aggressive share-buyback programs.

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