Our Outlook for the Credit Markets
Investment-grade bond spreads compress, but rising interest rates lead to a quarterly loss.
David Sekera
Dave Sekera, CFA, is chief U.S. market strategist for Morningstar. Follow David on Twitter: @MstarMarkets. Please note, Dave does not use either WhatsApp or Telegram. Anyone claiming to be Dave on these apps is an impersonator. He will not contact anyone on these apps and will not provide any content or advice on either app.
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Mini-Crisis in Cyprus Fails to Alarm Investors
For the most part, the credit markets were unfazed by the news out of Cyprus and likewise indifferent to the lower-than-expected earnings and weak guidance from FedEx and Oracle.
Complacency Continues to Broaden
With volatility at multi-year-low levels and plenty of liquidity looking for a home, any day with positive news allows asset prices to levitate.
Demand for Corporate Bonds Stronger Than It Appears
Of the issues that we followed in the secondary market, each was trading higher last week.
Corporate-Bond Markets Yawn at Bernanke, While Sequester Generally a Non-Event
While the sequester will affect some sectors more than others, it won't have a significant near-term impact on the corporate credit markets, says Morningstar's Dave Sekera.
Equities Retreat as Corporate Bonds Hold Their Own
What could shake the credit markets' sanguine disposition in the near term? Consumer spending, China, and Europe, according to Morningstar's Dave Sekera.
Financial Markets Increasingly Complacent
With so many threats lurking and the ever-present risk that something strikes from left field, staying vigilant makes a lot of sense, warns Morningstar's Dave Sekera.
Rising LBO Potential Induces Debt Sell-Off
As M&A activity heats up, many investors have been scouring their portfolios to reduce exposure to companies that could be subject to debt-leveraging transactions.
January Spreads Tightened, but Investors Still Lost Money
Many investors tried to dodge the effects of rising interest rates as demand for shorter-duration bonds increased.
Plenty of Cheap Debt to Go Around
U.S. banks have repaired their balance sheets and have ample credit capacity available to provide commitment letters supporting M&A activity.
M&A Activity Poised to Heat Up
Dell could be the harbinger of the return of the leveraged buyout.
Despite Busy Week, Many New Issues Suffer Indigestion
Even though investors had plenty of cash ready to put to work, the sheer volume of new issuance and the lack of new issue concessions allowed for weakness in the secondary markets.
Markets Rally, but Implied Volatility Curve Steepens
Although the fiscal cliff was averted, once the debt-ceiling battle heats up in earnest, access to the new issue market could quickly become impaired.
Our Outlook for the Credit Markets
2012 was a great year for bonds, but upside for 2013 appears limited.
Credit Outlook: Sector Updates and Top Bond Picks
Get our sector-by-sector take on the bond market, plus our five best bond ideas.
If a Little Is Good, More Must Be Better
As the Fed is flooding the markets with liquidity, market-implied inflation expectations soar higher.
Corporations Take Advantage of Low Yields
Considering the uncertainty in future tax policy driven by the fiscal cliff negotiations, we suspect there will be one last push of new bond issues as corporations evaluate debt-funded special dividends.
Racing Against the Clock, Issuers Evaluate Special Dividends
We may see a flurry of new issues before year-end as corporations evaluate debt-funded special dividends in order to return cash to shareholders before the income tax rate on dividends increases.
Rising Tide Leveling Off for Credit Sector
While credit spreads have tightened across the board over the past few months, we generally expect the rate of improvement in credit quality will stagnate as global economies weaken and corporate earnings are pressured.
Credit Rally Takes a Breather
Telecom, tech, and media credits weaken the most, while REITs, transportation, and insurance held up better.
Assessing Sandy's Impact on the Bond Markets
Delayed by the storm, new issuance surged late last week. Plus, we examine the credit impact on utilities and munis.
One Foot on the Brake, One on the Gas
While strong technical factors continue to drive the corporate bond market in the short term, portfolio managers are also sharpening their sell lists.
The Song Remains the Same
With continued bond fund inflows, little new issuance, and low dealer inventories, traders are scrounging to source bonds.
Financial Corporate Bonds Outperforming Industrials
The fact that credit spread tightening has been led by the financial sector has been a common theme throughout the year.
Credit Market Takes a Breath
We believe the preponderance of credit spread tightening is likely to have run its course over the near term.
Credit Outlook: Sector Updates and Top Bond Picks
Get our sector-by-sector take on the bond market, plus our five best bond ideas.
Our Outlook for the Credit Markets
Corporate bonds rally as the Federal Reserve's purchases reduce the supply of other fixed-income securities.
'Buy 'Em All First, Let Research Sort It Out Later'
Technical factors may dominate in the credit markets for now, but fundamentals overrule in the long run.
Large Injection of Monetary Steroids Lifts Credit Markets
In a bull market like we are experiencing now, any issuer that comes to market is likely to find a welcome reception, regardless of its credit quality.
Monetary Largesse Lifts Credit Market
While the market as a whole appears to be driven by monetary policy as opposed to individual fundamental analysis, we advise investors to be cautious in selecting which bond offerings they participate in.
Corporate Bond Investors Appear to Be Fading the Rally
Credit spreads could widen out if the markets are disappointed by the actions--or inactions, as the case may be--of the Fed and ECB after their respective meetings.
August Doldrums Settle In, but Risk Rumbling in the Near Distance
Underlying market technicals continue to support corporate bonds, but renewed risk from a weakening global economy and systemic risk from sovereign issues hover on the horizon.
Enjoy the Quiet While It Lasts
Over the course of the next month, we expect a number of events may cause a disruption in the calm we have experienced.
New Bond Issue Market Remains Unusually Active
New issue supply was easily swept up as investors continue to pour money into corporate bond funds.
Corporate Bond Investors Buying Anything in Sight
Despite the drama out of Europe, investors are continuing to pour money into U.S. corporate bonds.
Draghi Pulls Off a Stick Save
The ECB must weigh several important implications as it contemplates following through on the market intervention implied by its president last week.
Green Shoots Emerge in a Still Bleak M&A Landscape
We expect M&A trends to hold steady, despite the weakened fundamentals in Europe and China as well as mixed economic indicators in the U.S.
Corporate Bond Market Holding Up Surprisingly Well
Fixed-income managers still have cash that needs to be put to work, and many appear to favor corporate bonds over other fixed-income instruments.
EU Crisis Still Not Behind Us
Credit markets rallied on news of the latest EU plan, but a long-term resolution will require individual countries to relinquish budgetary authority to an EU agency, the implementation of a banking union, and more.
Our Outlook for the Credit Markets
The European sovereign debt crisis flares anew, supporting our long-held investment thesis to favor corporate bonds of U.S. issuers over European issuers.
Fed's Lowered Projections Not a Surprise
A lower inflation forecast may provide room for further monetary accommodation or quantitative easing, but the amount of room the Fed has to maneuver is still limited.
Credit Outlook: Sector Updates and Top Bond Picks
Get our sector-by-sector take on the bond market, plus our five best bond ideas.
Why Should U.S. Investors Care About Spanish Finances?
We believe that if Spain or its banking system defaults, the result will be a liquidity crisis in Europe.
The Rumors Were True: Eurogroup Agrees to Provide Loans to Recapitalize Spanish Banks
We continue to favor U.S. corporate bonds over European corporate bonds.
'At Least We're Not Greece'
The continual deluge of negative news is wearing down even some of the most upbeat individuals.
Are We Just Whistling Past the Graveyard?
Investors in the corporate credit markets are trying their best to remain cheerful under difficult circumstances.
Will One Bad Apple Spoil the Bunch?
While Greece leaving the eurozone would cause significant stress in the short term, we think the greater impact is the precedent it would set for other financially beleaguered countries.
Where There Is Smoke, There Is a Raging Inferno?
J.P. Morgan's trading losses are certainly a negative mark on Jamie Dimon's reputation, but we do not believe this hit to the bank's capital levels is substantive enough to affect our issuer credit rating.
Economic Roller Coaster Takes Credit Spreads Back to Where They Started
Things look great in the rearview mirror, but the windshield is becoming increasingly foggy.
Earnings Offset Economic Indicators in Bond Market
Earnings and credit fundamentals continue to be stable, but until we gain more clarity on the European sovereign debt crisis and the slowdown in emerging markets, a neutral stance on corporate bonds is warranted.