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Credit Insights

Liquidity in Corporate Bond Market Drying Up

An increasing number of exogenous factors are affecting available capital.

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In last week's Bond Strategist, we wrote that if the credit market opened last Monday to the upside, we expected a relief rally to ensue; however, we warned that if the credit markets were unchanged or wider, it would indicate a lack of confidence in the Europeans' ability to stem further degradation in Europe and lead to further downside.

As it turns out, the credit market was weaker last Monday, the sovereign debt markets began to drop precipitously Tuesday, and the corporate credit market widened throughout the week. The Morningstar Corporate Bond Index widened more than 10 basis points to +241. While it appears that the European Central Bank intervention has halted the widening in Italian and Spanish yields for now, we think the overhang of systemic risk from Europe will push corporate credit spreads wider.

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