View Of Credit Spreads Closer To Neutral
New York, NY – Respondents to the latest IACPM Credit Outlook Survey continue to forecast rising credit defaults over the next 12 months in every category of debt tracked by the survey and in every region of the world, just as they have every quarter since the second quarter in 2014 when respondents were neutral on their outlook for European corporate debt. The IACPM Aggregate Credit Default Outlook Index is negative -31.4, relatively unchanged from last quarter’s minus -34.6.
“The threat of rising defaults has been with us for some time” commented Som-lok Leung, the Executive Director of the IACPM. “Recently, we’ve seen a greater number of downgrades from the rating agencies and some transactions have been affected but, all things considered, not that many, nor has liquidity dried up in any meaningful way. The real question is what happens when interest rates rise. How extensive will be the impact?”
Indeed, even as survey respondents continue to be concerned about the prospect of rising defaults, their outlook for credit spreads over the next three months is decidedly mixed, with large numbers of respondents on both sides of the question: will spreads widen or tighten? The Aggregate Credit Spread Outlook Index is negative -7.0 which is considerably closer to neutral than last quarter’s reading of minus -45.2 which meant at that time significantly more respondents believed spreads would widen rather tighten.
“It’s possible we’re reaching an inflection point,” noted Mr. Leung. “Respondents aren’t so much worried about a downturn as much as they think economic expansion will slow down. Credits on the fringe, such as high yield energy companies, could be in for a rough patch, while other credits, such as investment grade debt, may not be as impacted.”
The credit outlook survey is conducted among members of the International Association of Credit Portfolio Managers, which is an association of credit portfolio managers at 103 financial institutions located in 17 countries in the U.S., Europe, Asia, Africa and Australia. Members include portfolio managers at many of the world’s largest commercial banks, investment banks and insurance companies, as well as a number of asset managers. Members are surveyed at the end of each quarter. The latest survey was conducted September 29 to October 12.
Survey results are calculated as diffusion indexes, which show positive and negative values ranging from 100 to minus -100, as well as no change which is in the middle of the scale and is recorded as “0.0.” Positive numbers signify an expectation for improved credit conditions, specifically fewer defaults and narrower spreads, while negative numbers indicate an expectation of deterioration with higher defaults and wider spreads.
Please click here to access a selection of aggregated survey data.
The full aggregated survey results will be published with a 6 months time lag in the members only section of our website. Please click here to access prior quarters’ survey results.
The IACPM, with 103 member institutions located in 17 countries, is a professional association dedicated to the advancement of credit portfolio management. Founded in 2001, the organization’s programs of meetings, studies, research and collaboration are designed to increase awareness of the value and function of credit portfolio management among financial markets worldwide, and to discuss and resolve issues of common interest to its members.