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Credit Insights

U.S. Economy Falling Back Instead of Springing Forward

While credit spreads may tighten modestly, over the longer term the preponderance of credit spread tightening has run its course, says Morningstar's Dave Sekera.

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While economic indicators released last week don't point to a recessionary environment, they were generally softer than expected and indicative of a spring slowdown. For example, the ISM Manufacturing Index declined to 51.3 compared with the consensus estimate of 54.0 and the ISM Non-Manufacturing Index declined to 54.4 versus consensus of 56.0 (a reading above 50 indicates expansion). The
 Automatic Data Processing (ADP) employment report of 158,000 jobs added during March missed consensus of 205,000, the employment report of 88,000 added jobs missed consensus of 193,000, and jobless claims rose to 385,000 versus expectations of 350,000.

Credit indexes pulled back slightly last week as the markets digested weaker economic indicators in the United States and Europe and weighed the implications of a new quantitative easing program in Japan. The average spreads in the Morningstar Corporate Bond Index and the Morningstar Eurobond Corporate Index widened 2 basis points to +142 and +143, respectively.

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