IACPM Credit Outlook Survey Forecasts Tighter Spreads for Investment Grade Credit

New York, NY – A fourth quarter survey of members of the International Association of Credit Portfolio Managers shows portfolio managers expect credit spreads to tighten over the next three months for investment grade credit, especially in the U.S.. The IACPM’s fourth quarter Credit Spread Outlook Index for U.S. investment grade debt is a positive 25.5, which means a majority of survey respondents believe spreads will tighten in this asset class.

At the same time, however, credit portfolio managers have differing views about the potential for tightening in non-investment grade credits. Thirty four percent of respondents believe U.S. high yield spreads will narrow, while 38 percent believe they will widen. Twenty eight percent say they will remain unchanged.  The resulting Credit Spread Outlook Index for this asset class is a slightly negative -4.3.

“Most survey respondents clearly believe the outlook for investment grade debt will improve in terms of credit spreads,” said Som-lok Leung, Executive Director of the IACPM, “but the outlook for non-investment grade credit is cloudy. Opinion runs the gamut.”

The IACPM’s Credit Outlook Surveys are calculated as diffusion indexes, which show positive and negative values from 100 to -100, as well as no change, which is recorded as zero. Positive values signify an expectation of improving conditions, such as tighter spreads, while negative values indicate an expectation of deteriorating conditions. The overall Credit Outlook Index for the fourth quarter is a slightly positive 4.9, which includes forecasts for investment grade and high yield, as well as geographical forecasts for the U.S. and Europe.

“The fourth quarter value of positive 4.9 is fairly close to zero, indicating opinion is split,” commented Mr. Leung. “Even so, 4.9 is still considerably better than the strongly pessimistic views of the second and third quarters when the results were negative -69.1 and negative -33.9 respectively.”

Survey respondents are somewhat more pessimistic about Europe versus the U.S.. While 36 percent of respondents say they expect spreads to tighten for European investment grade debt, 38 percent expect no change and 27 percent forecast wider spreads. In terms of European high yield debt, 23 percent of respondents expect narrower spreads, while 43 percent look for no change and 34 percent forecast wider spreads.

There is strong unanimity among respondents, however, about prospects for increased defaults. By an overwhelming value of negative -90.7, survey respondents expect defaults to increase over the next 12 months. Almost without exception, respondents expect higher defaults for corporate and consumer credit, as well as real estate debt. Respondents have forecasted higher defaults since the original survey was launched in December 2007 but this quarter’s score is the highest recorded in the survey’s history.

The IACPM conducts these quarterly surveys because its members value knowing how their colleagues are assessing risk as they make their own risk management decisions. The IACPM also publicly releases the results because it believes other market participants will benefit from the collective views of professional credit portfolio managers. So far, over five surveys and 34 outcomes, the survey has accurately forecasted credit conditions 94 percent of the time.


Please click here to access a selection of aggregated survey data.



The IACPM, with 85 member institutions located in 16 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.