Higher credit spreads expected with increased defaults: IACPM survey

By Sara Rosenberg

New York, April 17 - Portfolio managers expect credit spreads will increase as credit defaults rise, according to a survey released on Friday by the International Association of Credit Portfolio Managers.

The IACPM Major Markets Credit Spread Outlook Index, which is a forecast of spreads for the next three months, stands at negative 19, meaning that more survey respondents believe spreads will widen than narrow. By comparison, in December, this index was 4.9.

And, the IACPM Aggregate Credit Default Outlook Index is negative 95.3, meaning a majority of survey respondents believe defaults will increase over the next 12 months.

"One way to look at the results is credit defaults are real events in the economy while credit spreads are the market's pricing of that risk," said Som-lok Leung, executive director of the IACPM, in a news release. "In this case, survey respondents not only believe credit defaults will rise but also think the market will demand a greater return in the form of wider spreads.

"Even as defaults were predicted to rise, the forecast for spreads was coming in. Now, in this latest survey, we have a sea change with the risk of default and the expectation for pricing that risk finally heading in the same direction," Leung added in the release.

The IACPM conducts its quarterly survey among 80 member firms located in 14 countries in Europe, North America, Asia, Australia and Africa. Membership includes credit portfolio managers at commercial and investment banks, insurance companies and asset managers.

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