January Spreads Tightened, but Investors Still Lost Money

BOND STRATEGIST: Many investors tried to dodge the effects of rising interest rates as demand for shorter-duration bonds increased

Dave Sekera, CFA 6 February, 2013 | 5:27PM
Facebook Twitter LinkedIn

The average spread in Morningstar's Corporate Bond Index tightened 5 basis points in January to end the month at +135. Credit spreads in the financial-services sector tightened 10 basis points, outperforming the industrial sector, which tightened 2 basis points. In our first-quarter 2013 outlook, we opined that the financials sector would outperform the industrial sector this quarter, and we continue to hold that view. 

Within the industrials sector, basic industries and technology outperformed, tightening 11 and 8 basis points, respectively. As investors poured new money into fixed-income funds and exchange-traded funds (ETFs) and the economy continued its tepid recovery, portfolio managers were overweight with their purchases into these cyclical sectors. The energy sector underperformed in January as it widened 2 basis points, the only sector to widen over the course of the month, mainly because of shareholder activism in the sector.

While credit spreads tightened during the course of the month, corporate bond prices declined as interest rates rose. The 10-year and 30-year US Treasury bonds each rose 22 basis points, overwhelming the benefits from tightening credit spreads, resulting in a 0.73% decline in the Morningstar Corporate Bond Index. Based on movements in this index, it appears that many investors tried to dodge the effects of rising interest rates as demand for shorter-duration bonds pushed credit spreads of bonds with maturities under seven years tighter than longer-dated bonds. Bonds with maturities under seven years tightened 8 basis points as compared with a 2-basis-point tightening for bonds in the seven- to 10-year maturity range and 4-basis-point tightening for bonds with maturities over 10 years.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement