Third Quarter 2009 – Press Release

Expectation for Further Defaults Falls Sharply

Spreads Expected To Widen But Forecast Is Less Pronounced

New York, NY – Expectations for further credit defaults and widening credit spreads fell sharply in the latest IACPM Credit Outlook Survey. Overall, survey respondents still believe defaults will rise over the next 12 months but there is far less consensus than previous surveys. Using the IACPM Credit Outlook’s diffusion index measure, respondents forecast defaults to rise with a score of minus -15.3 compared to minus -72.3 in the last quarterly survey.

In the same survey, conducted at the end of the third quarter, respondents also continued to expect credit spreads to widen over the next three months but, again, with less certainty than they did at the beginning of July. In the latest reading, respondents called for widening spreads with an aggregate index measure of minus -12.0 versus minus -43.5 in the previous reading.

“Compared to the beginning of the year, survey respondents are far less concerned about widespread defaults or systemic collapse,” commented Som-lok Leung, Executive Director of the International Association of Credit Portfolio Managers, or IACPM. “A preponderance of survey respondents are still concerned about rising defaults and further believe spreads will widen but the focus seems to be limited to single credits now, rather than entire sectors or the whole system.”

The IACPM conducts its quarterly survey among 80 member firms located in 14 countries in Europe, North America, Asia, Australia and Africa. Membership includes credit portfolio managers at commercial and investment banks, insurance companies and asset managers.

Survey results are calculated as diffusion indexes, showing positive and negative values from positive 100 to negative 100, as well as no change which is recorded as ‘zero.’ Positive values signify an expectation for improving conditions, such as tighter spreads or fewer defaults, while negative values indicate an expectation of deteriorating conditions.

Particularly striking in the latest survey, respondents barely forecast higher defaults for corporate credits over the next 12 months, giving it a score of minus -2.8 with almost as many people predicting fewer defaults as those expecting a larger number. This is the first time the measure has been this close to positive territory since the IACPM began conducting its survey in the fourth quarter of 2007.

“There is certainly still some default risk in the market but several respondents note a number of really big issues have been resolved,” said Mr. Leung. “For example, the auto industry has already seen a number of bankruptcies and is well into the restructuring process. Now, instead of worrying about entire sectors defaulting, many people are focusing on single names.”

Several respondents caution, however, some sectors do remain vulnerable. Rising unemployment and a cutback in consumer spending could lead to problems in the retail sector and there is still significant concern about real estate. Survey respondents forecast rising retail and consumer defaults by scores of minus -17.9 and minus -25.9 respectively.

Similarly, results in the latest survey indicate respondents have adjusted their views on credit spreads as the global financial markets have pulled back from the crisis levels of last fall. Respondents forecast both investment grade and high yield spreads in the U.S. to widen but with lowest negative values since last December. The IACPM’s Credit Outlook Survey was minus -11.1 for investment grade debt and minus -7.0 for high yield.

“The panic factor seems to have come out of the market,” said Mr. Leung, “and now we are closer to more traditional levels.”

Respondents are somewhat more concerned about spreads in Europe. The index scores in this part of the survey were minus -15.0 for European investment grade debt and -15.4 for high yield.

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 80 member institutions located in 14 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.