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Credit Insights

Corporate Bonds Continue Their March Higher

As earnings season dies down, the new issue market is picking up in earnest.

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The corporate credit market continued its march higher last week. Credit spreads tightened another 7 basis points, as the average spread of Morningstar's Corporate Bond Index declined to +211 basis points over Treasuries. Economic indicators released last week were generally positive and were capped off Friday with a much stronger-than-expected nonfarm payrolls report. The bulk of fourth-quarter earnings reports have generally been in line with expectations. A few exceptions aside, credit metrics across our coverage universe continue to point toward strong credit quality.

As earnings season dies down, the new issue market is picking up in earnest. Once corporations released their earnings reports, they have been using the opportunity to lock in long-term financing at all-time-low yields. Between the recovery in credit spreads and near-record lows in Treasury rates, corporations are finding that they have been able to issue bonds at historically low all-in yields. For example,  Procter & Gamble (PG) (rating: AA) issued 10-year bonds at 55 basis points over Treasuries, resulting in a record-low interest rate of 2.30%. We expect many more corporations to come to market during the next month to lock in these low long-term rates while they can.

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