Survey Respondents See Credit Spreads Widening, Credit Defaults Rising
New York, NY – The latest quarterly IACPM Credit Outlook Survey turned sharply negative as survey respondents see conditions deteriorating in every segment measured. They expect credit spreads to widen over the short term for both investment grade credit and high yield debt. They forecast rising defaults over the long term in every region of the world, including Europe, Asia and North America.
The three month aggregate IACPM Credit Spread Index is negative -55.0 in the latest reading, while the twelve month aggregate IACPM Credit Default Index is negative -54.8.
“There’s a clear consensus among survey respondents that credit conditions will worsen,” commented Som-lok Leung, the Executive Director of the IACPM. “For example, 76 percent of respondents think North American High Yield credit spreads will widen, while only eight percent believe they will tighten. What’s less clear, though, is how much conditions will deteriorate.”
Events in China are one of the key questions. Observers are unsure how badly the economy is sputtering because transparency is limited. Is growth merely slowing down or is the Chinese economy falling dramatically? That said, 81 percent of survey respondents believe Asian defaults will rise over the next twelve months. Not a single respondent believes defaults will ease.
Falling oil prices are another area of concern. The energy patch has already seen some bankruptcy filings, such as Arch Coal, and Spain’s giant green energy company Abengoa which has taken steps towards a bankruptcy filing. Additionally, survey respondents are also concerned about the potential knock on effect in industrial segments such as steel, mining and commodities. At the same time, however, many other segments are doing well. In terms of credit, AB InBev was able to sell a staggering $46 billion dollars in bonds earlier this month, the second largest debt deal on record.
“The real question is how much has all the turmoil affected access to credit,” said Mr. Leung. “Certainly, the high yield market, especially energy issues, has been backing up for some time. On the other hand, AB InBev demonstrates there’s still a considerable amount of money available for certain sectors and certain companies. We may be looking at winners and losers rather than an overall correction.”
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 97 financial institutions located in 17 countries in the U.S., Europe, Asia, South 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.
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 97 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.