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Challenging Days Ahead for the Bond Market

Weakening commodities prices, slower growth in China, and an overhang of new issuance in investment-grade will weigh on bonds.

Dave Sekera: Escalating global political discord, weakening commodity prices, tightening domestic monetary policy, and required funding for outstanding M&A will likely keep corporate credit spreads throughout the first quarter within a narrow trading range near the currently elevated levels.

Based on the underlying fundamentals within the energy and metals and mining sectors, our credit analysts expect commodity-price levels will remain under pressure in the near term. This will lead to higher default and bankruptcy rates in those sectors later this year; yet we expect defaults will remain low elsewhere. Low commodity prices have adversely impacted near-term economic conditions; but over the longer term, these lower prices will help to support consumer spending.