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Credit Insights

Washington Limbo Leaves Markets Flat--Until Talks Reportedly Progress

Coming to an agreement to reopen the government becomes much more essential with each passing day.

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The credit and equity markets were flat through Thursday last week despite the continued government shutdown and concerns about the debt ceiling. The average credit spread in Morningstar's Corporate Bond Index tightened 1.8 basis points to +142.9 and the Dow and S&P 500 were up just 0.4% and 0.1%, respectively. The markets had a bit of a rally late Thursday into Friday on reports that discussions were progressing that would raise the debt limit for six weeks. The Morningstar Corporate Bond Index ended the week 2 basis points tighter at+143, and the Dow and S&P 500 were up roughly 1% for the week. 

Addressing the debt limit is critical, as Bob Johnson, Morningstar's director of economic analysis, says going over would cause the market to sink by 10%-15%. Still, the potential six-week extension does not immediately address the government shutdown. Coming to an agreement to reopen the government becomes much more essential with each passing day.

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