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Credit Insights

The Bond Story Remains the Same

The tale continues to be all about the Federal Reserve and its ongoing quantitative easing program.

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Last week was quiet on the news front, as earnings season wound down and no significant economic indicators were released. The Morningstar Corporate Bond Index tightened 3 basis points at the beginning of last week and held on to those gains throughout the week, even though the credit default swap market widened toward the end of the week. 

The story continues to be all about the Federal Reserve and its ongoing quantitative easing program. This asset-purchase program continues to distort the market's risk/reward dynamics, as interest rates are driven by monetary policy goals from a buyer who is unconcerned about future mark-to-market losses. It's increasingly disconcerting that more and more clients we have spoken with are of the same general sentiment--this will end badly--but they feel as if they have no choice but to play along for now, or they will undertake too much career risk of lagging the indexes.

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