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Credit Insights

Sovereign Default Risks Brewing Once Again

European corporate bond spreads widened 10 basis points last week, with an even greater weakening in the financial sector.

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Going into last week, credit spreads for many industrial issuers were at their tightest level for the year. As the week wore on, we experienced a bit of a backup as industrial spreads slowly widened. However, the financial sector picked up the slack and tightened enough to result in a 3-basis-point tightening in the Morningstar Corporate Bond Index to +149. All in all, it was an orderly market. The new issue market continues to be robust, and we did not see any significant credit-specific events in the domestic credit markets.

The European credit markets did not fare as well. Sovereign default fears, which had been brewing under the surface, rose to the forefront by the middle of last week. As a result, European corporate bond spreads widened 10 basis points, with an even greater weakening in the financial sector.

David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.