Corporate Credit Market Regains Some Ground

After hitting their tightest levels since the 2008-09 global credit crisis in late January and early February, corporate credit spreads have generally been on a widening trend as the threat of global trade wars heightened the market's perception of credit risk. However, after widening from those lows, corporate credit spreads regained some ground this past week. The average spread of the Morningstar Corporate Bond Index (our proxy for the investment-grade bond market) tightened 3 basis points last week to +112. This is still 24 basis points wider than where the index bottomed out in early February and 15 basis points wider year to date. In the high-yield market, the BofA Merrill Lynch High Yield Master Index tightened 8 basis points last week; however, it remains 41 basis points wider than where it bottomed out in late January and is almost back up to the level it was at the end of last year. Although the S&P 500 fell 1.38% last week, it appears that corporate bond investors are becoming more comfortable undertaking credit risk at these levels.

Fund Flows Across High Yield Essentially Unchanged Fund flows among high-yield open-end mutual funds and exchange-traded funds were essentially unchanged last week, having increased a net $0.1 billion. Inflows of $0.3 billion among the high-yield ETFs slightly more than offset the outflows of $0.2 billion across the high-yield open-end mutual funds. Year to date, there has been a total of $13.4 billion of outflows across the high-yield sector, consisting of $8.0 billion of outflows among the open-end high-yield mutual funds and $5.4 billion of net unit redemptions among the high-yield ETFs.

Morningstar Credit Ratings, LLC is a credit rating agency registered with the Securities and Exchange Commission as a nationally recognized statistical rating organization ("NRSRO"). Under its NRSRO registration, Morningstar Credit Ratings issues credit ratings on financial institutions (e.g., banks), corporate issuers, and asset-backed securities. While Morningstar Credit Ratings issues credit ratings on insurance companies, those ratings are not issued under its NRSRO registration. All Morningstar credit ratings and related analysis contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Morningstar credit ratings and related analysis should not be considered without an understanding and review of our methodologies, disclaimers, disclosures, and other important information found at https://ratingagency.morningstar.com.