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Credit Insights

All Quiet on the European Front

We are cautious that the current credit rebound will persist.

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Last week was relatively uneventful, as Europe was quiet and the few economic indicators released were within expectations. Credit spreads ground 2 basis points tighter, with the Morningstar Corporate Bond Index declining to 181 basis points over Treasuries. We think credit spreads will continue to constrict over the next few months and may tighten back to last April's levels (+134). After peaking at almost 2.40%, the 10-year Treasury bond recovered some of its recent losses and ended the week at 2.23%, about 7 basis points lower than the end of the prior week.

However, we are cautious that this rebound will persist. With no additional quantitative easing programs on the horizon, Operation Twist winding down by early summer, and the safe-haven demand for Treasuries dwindling, we think interest rates are poised to rise over the next few months.

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