Credit portfolio managers rosier about North America, but not Europe – IACPM survey

Global credit portfolio managers believe credit conditions have improved, particularly in North America, but things still look grim in Europe, according to the latest quarterly survey from the International Association of Credit Portfolio Managers.

Two-thirds of surveyed managers do not expect the U.S. to fall into recession, up from 28% who expressed that sentiment the previous quarter.That optimism is reflected in the survey's Aggregate Credit Spread Outlook index for the next three month, which improved to 0.0 for North American investment-grade fixed income, up significantly from -42.4 a quarter earlier.

A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.

While that is an improvement for North America, IACPM Executive Director Som-lok Leung said in an interview that sentiment is not yet positive, and that defaults are still expected to increase over the next 12 months in the region, with 71% of survey respondents expressing that sentiment this quarter.

"Europe is the place where there's general agreement that things are looking relatively negative," said Leung.

Sixty-nine percent of survey respondents believe that the U.K. and Europe is either already in recession or will be in 2024, although the sentiment regarding credit spreads is less negative for the next three months with its Credit Spread Outlook index for European investment-grade fixed income rising to -16 from -57.1.

The survey's Aggregate Credit Default Outlook index for the next 12 months improved very slightly on a global basis to -59 in the fourth-quarter survey from -59.9 in the previous quarter. Europe was the one region that saw the outlook worsen for the next 12 months, down to -81.5 for the fourth quarter from -65.6 for the third quarter.

The survey was conducted among IACPM members, who are credit portfolio managers at more than 135 financial institutions in the U.S., Europe, Asia, Africa and Australia.