Optimism among credit portfolio managers cools in Q2
by Danielle Robinson
NEW YORK, April 20 (IFR) - Fewer global investors believe the US credit markets offer much more tightening, and have virtually no conviction as to what direction European bonds will go, according to a survey by the International Association of Credit Portfolio Managers (IACPM).
A survey of its 90 member institutions, conducted in early April, found that on a scale of zero to 100, the range of confidence in further spread tightening in high grade and high yield US bonds for the second quarter was at 22.9 and 12.5, respectively, compared with 56 for both asset classes at the beginning of the first quarter.
The outlook for European spreads in the second quarter tipped into negative territory for the first time since June 2010, with respondents offering scores of minus 4.4 and minus 2.2 respectively for expectations of further tightening of the iTraxx Europe five year and the iTraxx Europe Crossover five year.
That's a significant turnaround from the 21.7 and 30.4 scores the European high grade and crossover indexes received at the beginning of the first quarter.
"There is less certainty that things will get better and there is an increasing bifurcation between the view for North America versus Europe," said Som-lok Leung, executive director of the IACPM.
"The results may initially seem surprising given continuing economic recovery. However, there are certainly a number of headwinds that are giving people cause for concern," he added.
Those concerns included inflation and rising interest rates, as well as uncertainty regarding the political outlook for the Middle East and whether peripheral European sovereign credit strength will continue to deteriorate.
The IACPM also surveyed member views on the outlook for credit defaults. Although respondents still expect default rates to decline, their confidence level was significantly lower for the second quarter, compared with the first.
The IACPM's aggregate credit default outlook index scored 19.4 for the second quarter, compared with 34.3 in the first.
The IACPM is an international professional association for of credit portfolio managers.
Danielle Robinson is a senior IFR analyst.
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