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Credit Insights

More Sovereign Bailouts to Come?

Without additional structural reform among troubled governmental entities, we expect only a brief respite before the next crisis.

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The Morningstar Corporate Credit Index widened 4 basis points to +154 last week. Financials led the index wider with the combination of sovereign credit fears and the Fed's announcement that it is going to conduct another stress test.

On the sovereign credit side, it looks as if we were a little too early last week with our call that Ireland would be bailed out in the near term after the country's credit spreads went ballistic. However, after protesting for the past two weeks that it would not require a bailout, the Irish government has relented and begun to negotiate the form and size of a financing package with the European Central Bank and International Monetary Fund. The Irish government has taken a hard line in its negotiation posture in order to keep as much sovereign control over its finances as possible, especially its ability to keep corporate tax rates lower than the rest those in the eurozone.

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