Declining Interest Rates Help Investors Recuperate Losses
Interest rates have declined since the Fed announced it was holding its bond-buying program steady and will probably continue to trend lower in the near term.
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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Our Outlook for the Credit Markets
Rising interest rates have taken their toll, but as the Fed delays dialing back on stimulus, investors are poised to recapture some of their losses.
Is It 'Wait Till Next Year' for a Fed Taper?
If the FOMC does not make a change in policy at its next meeting, the committee's credibility will erode further, but it's also possible a taper might not happen until March.
Verizon's Megadeal Provides Positive Tone for Credit Market
But that tone could be put to the test based on the FOMC's taper/no taper decision this week.
Verizon's Mammoth Deal Will Set the Tone Until Fed Meeting
Portfolio managers are hoarding their cash balances as they keep powder dry to participate in Verizon's massive upcoming debt issuance following its buyout of Vodafone's wireless stake.
Fed Likely to Begin Tapering in September
Although recently released economic indicators are pointing to sluggish growth, those metrics have not been weak enough to dissuade the FOMC from tapering.
Pace of Rising Interest Rates Should Moderate
As the 10-year Treasury approaches 3%, the pace at which interest rates are rising will slow, but the Fed could begin to taper its bond-buying program after its September meeting.
Corporate Bonds Take It on the Chin
Corporates are likely to struggle during the next few months as investors attempt to anticipate when and how quickly the Fed will taper its asset purchases and the subsequent bond market reaction, says Morningstar's Dave Sekera.
Credit Spreads Remain Range-Bound
We are seeing an increase in idiosyncratic catalysts that are specific to an individual issuer as opposed to industry factors that affect an entire sector.
Equities Rally, but Corporate Credit Spreads Stay Range-Bound
Interest rates have generally been on an uptrend since the beginning of May, and idiosyncratic risk seems to be rising from increased shareholder activism and aggressive share-buyback programs.
Credit Markets Continue to Heal
Many issuers have increased 2013 outlooks as sequestration has not had as meaningful an impact as it might have.
Fundamentals Returning to the Forefront
Although financial reports continue to show that companies are struggling to increase the top line, they have still generally been able to meet earnings expectations.
Market Rallies, but We Don't See a Change in Bernanke's Policy Stance
In addition to the strength or weakness of economic and unemployment metrics in the second half of this year, technical factors in the bond market may force the Fed's hand to begin tapering.
Fed Launches Into Damage-Control Mode
As the markets continued their rapid decline, the Federal Reserve sought to stem the flow of blood on Wall Street.
Our Outlook for the Credit Markets
Widening investment-grade credit spreads and rising interest rates lead to losses.
Markets Roiled by Fed's Threat to Take Away the Punch Bowl
Corporate bonds suffered a double whammy as interest rates rose and credit spreads widened.
What a Difference One Economic Data Point Makes
As soon as the employment number was released Friday morning, everyone immediately became a buyer of corporate bonds.
Higher Yields Fail to Attract Buyers
Interest rates have begun to rise as the market is pricing in an increasing probability that the Fed may begin to taper off its asset-purchase program within the next few months.
Market Anxiety Heightened by Prospect of Reduced Liquidity
We think last week's focus on the Fed's intentions calls into question just how much of the recent rally has been due to improving underlying fundamentals.
Credit Markets Normalizing, but Concerns Remain
Things are slowly improving in the bond market, but many of the issues in Europe that underlie the sovereign debt crisis remain unresolved.
The Bond Story Remains the Same
The tale continues to be all about the Federal Reserve and its ongoing quantitative easing program.
Apple's Bonds Appear Fully Valued; Intel's Are Much Cheaper for the Credit Risk
Apple's bond issue indicates to us that the depth of demand for corporate bonds could very well support megasize strategic mergers that were unthinkable only a few months ago.
The Demand for Everything Is Just Nuts
The longer that interest rates and credit spreads continue to generate historically low all-in yields, the more asset managers will stray from their traditional investment allocations.
Credit Markets Stand Back and Watch Equity Markets Vacillate
Commentary on earnings calls suggests that economic activity in Europe continues to slow and the pace of consumer spending in the U.S. has decelerated in April.
After Lagging the Equity Market, the Corporate Credit Market Finally Begins to Catch Up
The corporate bond market has been skeptical of the equity market's relentless march higher, but it appears that credit investors finally capitulated.
U.S. Economy Falling Back Instead of Springing Forward
While credit spreads may tighten modestly, over the longer term the preponderance of credit spread tightening has run its course, says Morningstar's Dave Sekera.
Investors Viewing European Banks With a Wary Eye
Spreads are widening among European-bank bonds, while holders of Cypriot bonds are now at a greater risk of impairment in future bailouts.
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
Investment-grade bond spreads compress, but rising interest rates lead to a quarterly loss.
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.