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Credit Insights

EU Crisis Still Not Behind Us

Credit markets rallied on news of the latest EU plan, but a long-term resolution will require individual countries to relinquish budgetary authority to an EU agency, the implementation of a banking union, and more.

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Corporate Credit Rallies on Latest EU Plan
Corporate credit spreads rallied significantly on Friday after the EU released a statement that proposed directly recapitalizing the Spanish banks, as opposed to the prior plan, in which Spain would have been liable for the debt. The statement also proposed that the bailout funds would not entail a preferred creditor status.

The Morningstar Corporate Bond Index rallied three basis points to +206 and the Morningstar Eurobond Index rallied one basis point to +236. Spanish and Italian bonds ripped tighter across the yield curve. The yield on the Spanish two-year bond dropped 144 basis points to 4.27%, and the yield on the 10-year bond dropped 61 basis points to 6.33%.

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