Outlook for investment-grade, high-yield credit improving — manager survey

Credit portfolio managers are forecasting tighter credit spreads and becoming less pessimistic about the prospects for credit defaults, according to a survey from the International Association of Credit Portfolio Managers.

As of Dec. 31, the IACPM Credit Spread Outlook Index, which measures the expected direction credit spreads will move over the next three months, is 33.7, compared to -5.6 as of Sept. 30 as measured in the previous quarterly outlook survey.

A positive numbers indicates credit improvement, according to the survey.

“I think I would interpret the overall results certainly as an improvement but not cause for unbridled optimism,” said Som-lok Leung, IACPM executive director in an interview. “It's better than it's looked in over a year if you look at the aggregate. I think it comes about from a reduction from uncertainty regarding the world's economies.”

According to portfolio managers surveyed from the 88 member institutions of the IACPM, the outlook for both investment-grade and high-yield credit spreads is better, while they forecast tighter credit spreads in both Europe and North America.

“For the default outlook, for the 12 months that is improved, but the overall consensus is still negative,” Mr. Leung said. “There are still problems in Europe. In North America, things are looking a bit better, but in Europe there's still very high unemployment in a number of countries, as well as government fiscal issues.”

As of Dec. 31, the IACPM Aggregate Credit Default Outlook index, which measures the expected direction credit default rates will move over the course of the next 12 months, is -11.9, compared to -34.6 the previous quarter.