Credit portfolio managers feel their portfolios are stabilizing thanks to the liquidity provided by government stimulus programs, according to the first-quarter survey from the International Association of Credit Portfolio Managers.
Rising liquidity has helped allay fears of rising corporate credit defaults, particularly in North America. In the first quarter, 25% of surveyed managers forecast rising credit defaults in the region over the next 12 months, well down from 63% in the fourth quarter.
Som-lok Leung, IACPM's executive director, said in a phone interview the new positive outlook is due to government stimulus.
"It's definitely a significant shift, and I think the comments from our members are certainly that the default situation has been pretty good," Mr. Leung said. "Defaults have been relatively low with some exceptions here and there, but overall, I think government stimulus — not only in the U.S., but in multiple countries — has had its predicted effect."
Globally, less than half of surveyed credit managers, 40%, forecast rising loan defaults over the next 12 months, down from the 61% of managers that responded with that answer in the fourth quarter (and 73% in the third quarter).
By regions outside of North America, 46% see defaults rising in Europe (down from 74%), 30% in Asia (down from 48%), and 24% in Australia (down from 31%).
The Aggregate Credit Default Outlook index for the next 12 months rose to -39.7 in the most recent survey, improving from -64.2 in the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
By region, North America's number is in positive territory for the first time since the fourth quarter of 2013 with an index of 16.7, up from -44.7 three months earlier.
The index for Australia rose to neutral (0.0) from -31.3 the previous quarter, while Asia rose to -13 from -42.9 and Europe rose to -31.4 from -58.1.
Fewer surveyed managers believe credit spreads will widen over the next three months in all regions and categories, compared with the previous quarter's survey.
Thirty-one percent believe spreads will widen on high-yield debt in Europe (down from 52% in the previous quarter's survey), while 27% believe spreads will widen on North American high-yield debt (down from 50%).
On the investment-grade side, 31% believe spreads will widen on European debt (down from 39%) and 17% on North American debt (down from 55%).
Mr. Leung said the data do not reflect some members' concerns.
"I think the question people are grappling with, and the worries still persist, is related to what happens when the government programs pull back," Mr. Leung said. "What's going to be happening to inflation and interest rates given the large amounts of government spending?"
The survey is conducted among IACPM members, which consist of credit portfolio managers at more than 100 financial institutions in the U.S., Europe, Asia, Africa and Australia.
