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Credit Insights

Markets Shrug Off Government Dysfunction

The buy-the-dip mentality is alive and well as portfolio managers are for the most part ignoring the political antics, trying their best to pretend it's not happening.

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The corporate credit market shrugged off the political rhetoric emanating from Washington last week. Corporate credit spreads traded in a narrow range last week, in a relatively directionless market. Spreads had tried to weaken at the beginning of the week, but as soon as they started to move wider, traders snapped up those offerings and pushed credit spreads right back down again. 

The buy-the-dip mentality is alive and well as portfolio managers are for the most part ignoring the political antics, trying their best to pretend it's not happening. For all of the headlines proclaiming the potential for a default on government bonds after the Treasury reaches the debt ceiling, investors are not placing any probability on a payment default actually occurring. After having been to the brink several times over the past few years only to be saved by a last-minute resolution, investors have been conditioned like Pavlov's dogs to expect an 11th-hour agreement.

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