Credit portfolio managers are forecasting rising default rates and widening high-yield credit spreads, according to a survey from the International Association of Credit Portfolio Managers.
As of June 30, the IACPM Credit Spread Outlook Index, which measures the expected direction credit spreads will move over the next three months, is -13.3, compared to -3.6 as of March 31 as measured in the previous quarterly outlook survey.
Survey respondents noted that an increase in default rates would be a return to more normal conditions.
“Default rates have been astoundingly low for the past year or more,” said Som-lok Leung, IACPM executive director, in a telephone interview. “You can refinance quickly at low rates. It's not that hard to avoid default. We've been at very, very low levels. We're going to start moving back toward normal.”
According to portfolio managers surveyed from the 87 member institutions of the IACPM, the forecast for North American investment-grade debt changed slightly to -2.2 in the latest survey from 4.3 in March while the outlook for European investment-grade debt improved slightly to -7.7 from -12.8 in March.
However, the forecast for high-yield credit spreads fell considerably in the second quarter. The index in North America dropped to -20.9 from zero in March and the index in Europe fell to -24.3 from -8.3.
