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Credit Insights

Credit Markets Continue to Heal

Many issuers have increased 2013 outlooks as sequestration has not had as meaningful an impact as it might have.

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The average spread in the Morningstar Corporate Bond Index tightened 4 basis points last week to +141, recapturing more than half of the spread widening since the index reached its tightest level of the year at +129 on May 15. The market's attention last week was mainly focused on earnings releases and issuer-specific fundamentals.

Among the trends we're seeing thus far this quarter, it appears that consumer spending is quickly decelerating. Several consumer product companies, especially in the restaurant sector, are reporting that traffic patterns and spending rapidly decelerated to flat in June and this slowdown has persisted through July. For example, in analyzing the drop-off in  McDonald's (MCD) (rating: AA-, wide moat) two-year comparable-store sales growth rate for the past two months, our analysis implies an almost 7% decline from May to July.

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

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