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LPC: Defaults seen up globally, but outlook less dim – survey
April 21, 2017 / 12:01 PM / 6 months ago

LPC: Defaults seen up globally, but outlook less dim – survey

NEW YORK, April 21 (Reuters) - Rising corporate debt defaults and widening credit spreads are expected globally, even as sentiment is less dire than in recent quarters, according to an International Association of Credit Portfolio Managers (IACPM) survey.

Interest rates are climbing, “but even so, rates remain historically low and the real question isn’t whether defaults will rise but rather at what rate,” Som-lok Leung, IACPM’s executive director, said in a statement. “Our members don’t think defaults will soar.”

The group’s 12-month Credit Default Outlook Index improved to -31.3 in the first quarter from -37.9 in the fourth quarter, a big shift from -56.2 in the first three months of last year.

Still, negative numbers indicate expected credit deterioration with higher defaults and wider spreads.

A steady pace of US economic growth led the Federal Reserve to raise interest rates in March, soon after its December 2016 hike. The central bank has signaled two more increases for this year.

Meanwhile, a sense of financial markets complacency is concerning, IACPM said in the statement.

Credit spreads are tight, with little or no risk premium, while the Brexit process, French elections, uneven growth in Asia and uncertainty over central bank activity pose challenges, according to the group.

“There’s a whole list of potential problems, but so far we’re managing to contain them,” Leung said.

Credit spreads are seen widening across all regions in the short term, although the outlook is less negative than it has been in recent quarters.

The IACPM 3-month Credit Spread Outlook Index improved to a -21.8 reading in the first quarter from -27.3 in the fourth quarter and -38 in the first quarter of last year.

“Despite all the challenges, there doesn’t seem to be any imminent catalyst for wider spreads or rising risk premia,” said Leung. (Reporting by Lynn Adler; Editing By Jon Methven)

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