Fitch Survey: U.S. Fixed Income Investor Hopes for Credit Market Stability Prove...

Fitch Survey: U.S. Fixed Income Investor Hopes for Credit Market Stability Prove Slippery

NEW YORK--(Business Wire)--
New economic worries and stress in the U.S. banking sector have
taken a further toll on investor sentiment according to the latest
Fitch Ratings/Fixed Income Forum Survey of senior fixed income money
managers conducted in June.

Approximately two-thirds of investors now expect the credit
markets to stabilize no earlier than 2009, in contrast to the January
2008 survey when most expected stability to return in 2008. Nearly all
investors place stability in the housing market as a 2009 or later
event and half of investors surveyed believe a recession is highly
likely in the U.S. over the coming year.

When asked to comment on the degree of risk posed by a series of
key macroeconomic factors, inflation and oil price volatility, not
surprisingly, registered the biggest gains in terms of factors
considered most detrimental to the credit outlook. Survey results
confirm that the dramatic spike in oil prices in the first half of
2008 has further clouded the outlook for the U.S. economy, raising the
spectre of a slow-growth, high-inflation environment.

In the recent survey there was an interesting divide in opinions
on the outlook for the financial sector, with investor expectations
essentially split between deterioration and improvement in credit
quality over the coming year. However, the failure of a financial
institution received the most votes as a high risk factor going
forward. This response, given prior to the recent troubles at IndyMac
and Fannie Mae and Freddie Mac, held steady even after the
first-quarter rescue of Bear Stearns, suggesting strong investor
scepticism that the worst of the crisis at financial firms had passed,
a concern that has proven more than justified.

'Taken together, the recent batch of survey responses suggests
that risk tolerance, at least among more traditional fixed income
investors, remains low, which in itself presents a problem for the
credit outlook,' said Mariarosa Verde, Managing Director and Head of
Fitch Credit Market Research. 'Investor confidence is the ultimate
ingredient in getting the credit markets back on track.'

Survey participants continued to be bearish on the direction of
corporate default rates over the next 12 months, with nearly all
participants expecting higher default rates. In addition, most
investors expect an increase in corporate leverage over the coming
year.

'Given the slowdown in the broader economy, it is not surprising
that investors expressed the most concern about cyclical industries,
the high yield corporate sector, as well as structured finance areas
exposed to the housing market,' said James Batterman, Managing
Director in Fitch's Credit Policy Group.

Investors do not anticipate any near-term rebound in issuance in
high yield corporate or structured finance.

The Fitch Ratings/Fixed Income Forum Survey is designed to provide
insight into the opinions of professional money managers on the state
of the U.S. credit markets. In carrying out this survey, the fifth in
the series, 72 senior investment professionals representing a wide
range of institutions were queried on matters involving the economy,
corporate strategies, fundamental credit conditions across various
asset classes and industrial sectors, and other relevant topics.

The full survey report is titled 'Credit Market Recovery Prospects
Weaken According to Senior Fixed Income Investors' and is available on
the Fitch Ratings web site, www.fitchratings.com, under the Credit
Market Research link.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
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relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, New York
Mariarosa Verde, 212-908-0791
James Batterman 212-908-0385
Brian Bertsch, 212-908-0549 (Media Relations)

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