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Credit Insights

One Foot on the Brake, One on the Gas

While strong technical factors continue to drive the corporate bond market in the short term, portfolio managers are also sharpening their sell lists.

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The average credit spread in the Morningstar Corporate Bond Index widened 3 basis points last week to +136. Markets softened as a steady stream of disappointing earnings and downward guidance badgered investor sentiment. However, stronger-than-expected economic metrics along with continued technical factors have largely helped to offset a significant widening in credit spreads.

In a completely unscientific poll of clients we met with over the past three weeks, portfolio managers appear to be driving their portfolios with one foot on the brake and one on the gas. While strong market technical factors continue to drive the corporate bond market in the short term, portfolio managers are attempting to balance the desire to maintain enough risk exposure to match corporate bond index returns. However, they are sharpening their sell lists as their trigger fingers become increasingly itchy.

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

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