{"id":64753,"date":"2014-12-05T05:06:19","date_gmt":"2014-12-05T10:06:19","guid":{"rendered":"http:\/\/countingpips.com\/?p=64753"},"modified":"2014-12-05T07:14:41","modified_gmt":"2014-12-05T12:14:41","slug":"investment-grade-credit-spreads-widening","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/12\/investment-grade-credit-spreads-widening\/","title":{"rendered":"Investment-Grade Credit Spreads Widening"},"content":{"rendered":"
December 5, 2014<\/div>
\r\n<\/div><\/div>

By WallStreetDaily.com<\/span><\/a> \"Credit<\/p>\n

By Alan Gula<\/a>, Chief Income Analyst <\/em><\/p>\n

What do McDonald\u2019s<\/strong> (MCD<\/a>), Philip Morris<\/strong> (PM<\/a>), Caterpillar<\/strong> (CAT<\/a>), Kimberly-Clark<\/strong> (KMB<\/a>), and Target<\/strong> (TGT<\/a>) have in common?<\/p>\n

Yes, they\u2019re all large-cap stocks that pay solid dividends.<\/p>\n

In fact, three are even Dividend Aristocrats, having increased their dividends for at least 25 consecutive years.<\/p>\n

But the common characteristic I\u2019m referring to isn\u2019t related to their dividends\u2026 or even their common stocks. Instead, I\u2019m looking higher up in the capital structure.<\/p>

\r\n
\r\n

Free Reports:<\/p><\/div>\r\n

\r\n

<\/a>\r\n\t Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p>

\r\n
\r\n
\r\n

<\/a>\r\n\t Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p>

\r\n<\/div>\r\n

\r\n
<\/div>\n

Specifically, each of the above companies is rated single-A by Standard & Poor\u2019s, a major credit ratings agency.<\/p>\n

They may not be AA- or AAA-rated, but single-As still have excellent credit worthiness, and tend to have narrow credit spreads (the additional yield provided by a corporate bond above that of U.S. Treasuries to compensate investors for the risk of default).<\/p>\n

At the moment, though, credit spreads for investment-grade (IG) corporate bonds are actually widening<\/em>.<\/p>\n

For their part, many market watchers are quick to dismiss the selloff in high-yield bonds, attributing it solely to the turmoil in the energy sector. But this is a mistake in its own right.<\/p>\n

Meanwhile, the companies I\u2019ve mentioned are a far cry from super-speculative, highly leveraged<\/a> oil exploration and production firms.<\/p>\n

Indeed, high-quality bonds have started selling off, too, and most are outside of the energy sector.<\/p>\n

After spending the majority of 2014 below 1% (100 basis points), benchmark single-A credit spreads have now pierced this key level, as you can see below:<\/p>\n

\"Investment<\/p>\n

Heading into 2015, there are two important takeaways from the action in IG credit spreads:<\/p>\n

    \n
  1. Spreads on single-A rated bonds still aren\u2019t very wide. They\u2019re rising from a very low level, historically speaking. So, in general, IG corporate bond investors aren\u2019t being generously compensated for their credit risk exposure. As a whole, IG corporates aren\u2019t very attractive investments\u2026 yet.<\/li>\n<\/ol>\n
      \n
    1. Single-A credit spreads stayed below 1% from early 2003 all the way until July 2007. When the S&P 500 peaked in October 2007, benchmark spreads had risen to around 1.3%. The bond market was flashing a huge warning signal, and this divergence is starting to reappear. If single-A credit spreads continue to widen, I\u2019d categorize this development as a significant warning sign that a major market top in equities is forming.<\/li>\n<\/ol>\n

      As I\u2019ve said before, the bond market leads the stock market. Don\u2019t dismiss the selloff in high-yield bonds, and keep a close eye on widening investment-grade credit spreads.<\/p>\n

      Safe (and high-yield) investing,<\/p>\n

      Alan Gula, CFA<\/p>\n

      By Alan Gula<\/a><\/p>\n

       <\/p>\n

      The post Investment-Grade Credit Spreads Widening<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

      \n

      <\/h3>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

      By WallStreetDaily.com By Alan Gula, Chief Income Analyst What do McDonald\u2019s (MCD), Philip Morris (PM), Caterpillar (CAT), Kimberly-Clark (KMB), and Target (TGT) have in common? Yes, they\u2019re all large-cap stocks that pay solid dividends. In fact, three are even Dividend Aristocrats, having increased their dividends for at least 25 consecutive years. But the common characteristic […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-64753","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/64753","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=64753"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/64753\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=64753"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=64753"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=64753"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}