A significant majority of credit managers believe credit defaults will rise over the next 12 months, said the latest quarterly survey from the International Association of Credit Portfolio Managers.
The Credit Default Outlook index over the next 12 months is -56.2, down from -54.8 the previous quarter. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
Of all regions, credit managers were most pessimistic about corporate defaults in North America. That region's index plummeted to -82.1 from -65 the previous quarter. Among the credit portfolio managers surveyed, 85% of those respondents expect corporate defaults to increase in North America over the next 12-month period.
“The U.S. stock market has bounced back from the beginning of the year and the leveraged loan market at least has a pulse,” said Som-lok Leung, IACPM executive director, in a news release, “but global markets are still facing significant headwinds. 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” in reference to a U.K. exit from the European Union.
The Asian Credit Default Outlook index was -71.4 for the first quarter, the second most negative score, although it was higher than the -80.8 from the quarter before. Australia and Europe's indexes were -66.7 and -40, respectively, for the first quarter, slightly better than -70 and -47.2 the previous quarter.
“The European corporate debt market is benefiting from the (European Central Bank)'s quantitative easing program and also the fact that investors are chasing the same loans,” Mr. Leung said in the news release.
Survey respondents also believe that credit spreads will widen over the next three months, with the IACPM Major Markets Credit Spread Outlook index at -38, although that is up from -55 the previous quarter.