2011 Credit Market Outlook

A change in focus toward shareholder-friendly activity in 2011 will cause issuer-specific credit widening to the detriment of some bondholders.

Dave Sekera 04.01.2011
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-- We forecast credit spreads will tighten...
-- ...But shareholder-friendly activities are increasing, and we expect more strategic acquisitions and LBOs. Covenant analysis will be important for bond investors.
-- Continued negative headlines from European sovereign issuers will cause short-term volatility.

While another sovereign credit crisis surfaced last quarter and caused a brief backup in corporate credit spreads, the impact was limited and the market quickly shrugged it off. The attitude among many corporate credit investors was "we've seen this movie before, and we know how it ends."

Bailouts for the struggling periphery European countries are now considered de rigueur. Strong third-quarter earnings reports, improving credit metrics, and generally improving economic indicators easily overpowered sovereign concerns and potential European bank contagion.

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