IACPM Credit Outlook Survey: Dealing with two Realities

Credit Default Forecast Rises in Latest IACPM Credit Outlook Survey
While Credit Spread Outlook Falls to Virtually Neutral

       New York, NY – Respondents in the latest IACPM Credit Outlook Survey see the risk of credit defaults rising almost across the board. The outlook worsened for corporate debt, corporate real estate and retail and consumer mortgage, as well as every region surveyed, including North America, Asia, Australia and Europe. The aggregate IACPM Credit Default Outlook Index declined from negative -26.0 in the second quarter to negative -34.6 in the third quarter.

At the same time, though, the outlook for credit spreads actually improved from negative -29.0 at the end of June to negative -5.6 in the latest survey, a finding that is almost neutral. Sentiment improved for both investment grade and high yield debt in North America, but also in Europe. For example, the outlook for European high yield debt improved from minus -41.0 in the second quarter to minus – 4.9 in the third quarter.

“We’re dealing with almost two realities here,” said Som-lok Leung, the Executive Director of the IACPM. “On the one hand, survey respondents are clearly worried about rising risk but, on the other hand, they don’t seem to think that spreads will rise in tandem with the risks.”

Survey respondents point to the flood of liquidity being poured into the world’s financial system by central banks, including the US Federal Reserve and the European Central Bank, as the reason the outlook for credit spreads is relatively benign. As long as companies and other borrowers can access low cost financing, most will be able to continue operations and avoid default, at least in the short term.

“The old saying ‘a rolled over loan gathers no loss’ has some validity here,” commented Mr. Leung. “One of the most crippling problems corporations can face is the loss of their ability to access financing. Market participants now clearly believe the world’s central banks are prepared to meet that challenge and so immediate fear is being held somewhat in check.”

The credit outlook survey is conducted among members of the IACPM, which is an association of credit portfolio managers at 87 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.

While the outlook for credit spreads has converged to a remarkable degree, the outlook for credit defaults still shows some disparity. The outlook for rising defaults in North America is the lowest of any region with a reading of minus –18.4 followed by Asia at minus –23.3. Europe remains the most troubled region with a score of negative –53.3.

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 87 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.