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Credit Insights

Corporate Bond Market Trying to Regain Its Footing

China's weaker-than-expected sales and production results exacerbated already dour market sentiment.

Credit spreads in the corporate bond market began on a strong note early last week but gave back some of the gains on Friday. Investor sentiment evaporated following weaker-than-expected economic data from China, heightened international trade tensions, and falling equity prices. Among the economic indicators released by Chinese officials, retail sales and industrial production were below expectations. While Chinese fixed-asset investment was in line with consensus, the weaker-than-expected sales and production results exacerbated the already dour market sentiment, which has been under pressure from the tense negotiations between the United States and China. Expectations for global growth were also tempered by the decline in the eurozone composite purchasing managers report. The index fell for the fifth consecutive month, to 51.3 from 52.7. While a reading above 50 indicates economic expansion, as opposed to a reading below 50, which indicates contraction, this most recent reading was the lowest of the past 49 months. Equity prices were pummeled Friday as the S&P 500 fell almost 2% for the day and ended the week 1.26% in the red. Year to date, the S&P 500 is down 2.76%.

Corporate bond credit spreads began the week on a strong note and snapped tighter through Thursday, then gave back some, but not all, of the gains on Friday. On a week-over-week basis, the average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade market) tightened 4 basis points to +145. In the high-yield market, the BofA Merrill Lynch High Yield Master Index also tightened 4 basis points to end the week at +446.