Playing Earnings-Induced Bond Swings

The S&P 500 is now down a little more than 3% since Oct. 17, which largely reflects a series of poor earnings reports from companies. This has also started to hit credit spreads, with the Investment Grade CDX index 8bps wider since Oct. 17. But should weaker earnings (or weaker guidance, revenue, etc.) move company bonds as well as stocks?

In the short term, earnings misses can move bond spreads, but such a move is only sustainable to the extent that weaker earnings actually translate into a weaker balance sheet. Otherwise, bonds moving wider on earnings announcements are often good buying opportunities....609 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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