Equities Retreat as Corporate Bonds Hold

BOND STRATEGIST: What could shake the credit markets' sanguine disposition in the near term? Europe, China and sluggish US consumer spending

Dave Sekera, CFA 26 February, 2013 | 10:07AM

Credit spreads were relatively unchanged over the course of last week. Even though global equity markets pulled back sharply on Wednesday and Thursday as a result of the release of the Federal Open Market Committee meeting minutes, the average spread in Morningstar's Corporate Bond Index traded in a very narrow range and ended last week 1 basis point tighter at +137. 

What could shake the credit markets' sanguine disposition in the near term? Risk emanating from Europe may flare up...

The corporate bond market had been lagging the recent run-up in the equity market over the past few weeks and was able to shrug off the week's weaker market tone. The minutes revealed that the FOMC discussed the pros and cons of the ongoing asset purchases, as well as framed a debate around how and when the Fed should discontinue the programme. This prompted concerns that the Fed may withdraw monetary stimulus sooner rather than later. Volatility in the equity market rose (the VIX rose to over 16 from 12.5 before ending the week at 14.5) and commodities (oil and gold) plunged.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Morgan Stanley51.87 USD0.19
Walmart Inc143.85 USD0.21

About Author

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

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