The expectation of QE3 from the Fed provided much of the fuel for the rally in risky assets over the summer. But now that those expectations have been met, signs have begun to emerge that the rally is running out of steam. One example is the recent performance of US corporate bonds. For BBB-rated US borrowers, spreads fell by about 18bp in September as a whole. But they actually edged up slightly in the second half of the month after the FOMC meeting. What’s more, the rebound in spreads was much more pronounced further down the credit spectrum.
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