Debt investors’ outlook for corporate-credit defaults is the most negative in almost seven years on weakening global growth, according to an International Association of Credit Portfolio Managers survey.
The credit default outlook index, in which a negative number indicates an expectation of more defaults over the next 12 months, fell in March to minus 56.2 -- the lowest reading since June 2009 -- from minus 54.8 in December, according to the IACPM quarterly review released Thursday. Investors have economic concerns in every global region and across market segments including corporate, commercial real estate, and consumer and retail mortgage debt.
“Clearly, there’s no shortage of problems,” said IACPM Executive Director Som-lok Leung. "U.S. interest rates could rise in the near future, energy prices are better but still low, Asia remains murky and Europe is contending with Brexit," that is, the possibility of the U.K. exiting the European Union.
The credit spread outlook index improved to minus 38 in March, from minus 55 in December, the survey showed, though the negative number still indicates an expectation of widening. Globally, 85 percent of survey respondents expect corporate defaults to increase in North America over the next year. A majority also forecast more in Asia and Australia.
If there’s a bright spot, it’s Europe, where 49 percent see more corporate defaults while 43 percent predict they’ll be unchanged. Leung said the more positive sentiment reflects the European Central Bank’s quantitative-easing program that pumps money into the economy. The U.S. Federal Reserve, in contrast, began a rate-raising cycle in December.
IACPM has more than 90 members including banks, insurance companies and asset managers in 17 countries. It conducts its survey 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. No change is recorded as 0.0.