Credit portfolio managers are concerned about credit defaults potentially rising over the next 12 months, but see credit spreads remaining steady over the next three months, said a survey from the International Association of Credit Portfolio Managers.
The aggregate IACPM credit default index fell to -28.0 as of Sept. 30, down from -18.6 the previous quarter.
A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.
Of all sectors, Australia dropped the most in the third quarter, to -43.5 from -17.4 from the previous quarter, followed by the European outlook to -22 from zero, and Asia dropped to -40 from -25. The North American outlook, while still negative, did improve very slightly to -20 from -23.9.
“Things are looking more dire,” said Som-lok Leung, executive director of the IACPM, in a telephone interview, “The IMF's outlook came out recently with increased chance of recession in Europe, moving down the estimate for world GDP growth.”
It's really Europe and Asia that have driven the higher credit default risk, especially Europe, Mr. Leung said.
“Europe is definitely an issue,” said Mr. Leung. “The European debt crisis from three or four years ago was never completely resolved. Unemployment never completely righted itself in the worrisome countries.”
“Things are looking better in the U.S. but Europe looks increasingly worrisome,” he added.
Meanwhile, the IACPM credit spread outlook index is 4.4 over the next three months, down from 8.6 the previous quarter, driven primarily by central banks continuing to underpin global economies by keeping interest rates low, keeping credit spreads at tight levels.
IACPM members — 102 financial institutions located in the U.S., Europe, Asia, Africa and Australia — were surveyed at the beginning of October.