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Quarter-End Insights

Credit Market Outlook: Tight Spreads Will Keep a Lid on Returns

As credit spreads have tightened on a nearly continuous trend over the past year, they are becoming richly valued relative to their historical average.

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  • Lower interest rates and tightening credit spreads have led to strong corporate bond returns.
  • Tight credit spreads will constrain returns for the remainder of 2014.
  • Interest rates should normalize and rise as the Fed exits its asset purchase program.
  • The spread between financial and industrial sectors holds steady.
  • Investors view benign risk in the short term, but longer-term risks remain.
  • ECB takes up the monetary-easing baton from the Fed.
  • Idiosyncratic risk prompts downgrades during the second quarter.

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