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Credit Insights

Plunging Chinese Markets and Rising Global Tensions Test Markets

Credit spreads and volatility to remain elevated.

Plunging Chinese markets, North Korea's nuclear weapons test, and rising tensions in the Middle East resulted in a substantial wave of risk-off sentiment across the global markets. Equity and commodity prices tumbled and credit spreads widened back out to their recent highs.

Over the first week of the year, the average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade corporate bond market) widened 2.5 basis points to +170 and the spread of the Bank of America High Yield Master II Index widened 28 basis points to +723. Indicative of the risk aversion in the equity markets, the S&P 500 fell 6%. In the commodity space, oil fell to almost $32 per barrel intraweek, its lowest price since 2003, and copper fell below $2 per pound, its lowest price since the credit crisis.