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Credit Insights

Corporate Credit Spreads Tighten Following Trump's Address to Congress

Probability of March interest rate hike soars.

While the markets pulled back slightly in the latter half of last week, risk assets remained near their highs after a significant boost Wednesday following President Donald Trump’s address to Congress. The average spread of the Morningstar Corporate Bond Index, our proxy for the investment-grade bond market, tightened 5 basis points to +118 last week. In the high-yield market, the credit spread of the Bank of America Merrill Lynch High Yield Master Index tightened 24 basis points to +360.

While current levels are wider than their historical lows of 2007, the corporate bond market levels are the tightest that credit spreads have registered since the fall of 2014 and significantly tighter than their long-term averages. The average spread of the Morningstar Corporate Bond Index is 50 basis points tighter than its long-term average of +168 since the end of 1998. The average spread of the Bank of America Merrill Lynch High Yield Master Index is currently 220 basis points tighter than its long-term average of +580 basis points since the end of 1996.

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