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Money Management

IACPM: Near-term credit concerns abating

In a stark reversal from last quarter, credit portfolio managers' pessimism regarding credit spreads in the near term has largely abated, according to a first-quarter survey by the International Association of Credit Portfolio Managers.

The Credit Spread Outlook index for the next three months overall rose dramatically to -3.3 in the most recent survey, which was conducted in the beginning of April, from -38.4 three months earlier. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.

Som-lok Leung, IACPM's executive director, said in a telephone interview that not only credit portfolio managers, but managers across all asset classes, feel much more optimistic about the risks of default in the near term.

"(For North America) definitely the Fed's changing stance last month has had a huge impact in the U.S.," Mr. Leung said. "The U.S.-China (trade war) situation, while still uncertain, also seems to look a little more optimistic in resolving in an organized way at the end of last year, but that's definitely secondary to the Fed action."

The Credit Spread Outlook index for the next three months for North American investment-grade credit is 0.0 for the current quarter, up from -30.3 the prior quarter and the outlook index for North American high yield credit is up to -6.7 from -45.5 the previous quarter.

"The biggest impact in Europe is certainly the Brexit extension," Mr. Leung said. "There's a lot of uncertainty and that uncertainty was certainly reflected in credit risks and credit assets, and with the extension at least we have some nearer-term stability."

The indexes for Europe and Europe crossover credit rose to 3.3 and -10.0 respectively, up from the prior quarter's respective indexes of -33.3 and -44.8.

While optimism has grown in the near term, the longer-term outlook is a little less certain, Mr. Leung added. The default outlook, which looks ahead 12 months rather than three months, looks more similar to the previous quarter's results, albeit with some improvement.

The Aggregate Credit Default Outlook index for the next 12 months is -55.7, up from -71.1 in the previous quarter's 12-month survey.

The survey is conducted among IACPM members, which consist of credit portfolio managers at more than 90 financial institutions in the U.S., Europe, Asia, Africa and Australia.