European Credit Defaults Seen Rising But Global Credit Spreads Forecast to Remain at Current Levels
New York, NY –The latest quarterly IACPM Credit Outlook Survey reflects the global uncertainty facing the world’s financial markets and economies. Survey respondents are mildly positive regarding the outlook for credit spreads in North America while they remain slightly negative for spreads in Europe. Respondents forecast tighter spreads for the next three months on North American investment grade debt with a diffusion index reading of 15.2 and a score of 11.1 for high yield debt. The outlook for European debt improved but was still negative -9.8 for investment grade securities and negative -7.5 for high yield.
“The Greek debt crisis has been resolved for the moment, and a substantial amount of liquidity has been injected into the system which has led to improved sentiment, but Europe still isn’t out of the woods so our survey respondents remain cautious,” commented Som-lok Leung, Executive Director of the International Association of Credit Portfolio Managers. “People are reacting moment to moment, taking a risk on, risk off position.”
Along with continuing concerns over the prospects for another sovereign debt crisis, survey respondents are also decidedly negative in their view of the economy in Europe and the potential for rising defaults over the next 12 months. In the face of negative growth in the first quarter and the prospect for more of the same in the second quarter, respondents forecast rising European corporate defaults with a sharply negative diffusion reading of -62.5.
Survey respondents also forecast higher defaults in Asia with a more modest diffusion score of -17.9 but they are neutral in their outlook for North America. They expect corporate defaults to remain at current levels by a barely positive score of 2.2. The U.S. economy is hardly enjoying a typically robust recovery following a recession but it is at least seeing some growth, albeit anemic.
“Global economic growth is poor to anemic and our survey respondents aren’t very confident help is around the corner,” said Mr. Leung. “Central banks aren’t eager to provide more economic stimulus so market participants are adjusting to life without it.”
The credit outlook survey is conducted among members of the IACPM, which is an association of credit portfolio managers at 84 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 beginning of each quarter.
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 84 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.