(The following statement was released by the rating agency)
Nov 15 - European investors believe the greatest threat to the booming high-yield bond
market stems from eurozone volatility and weak economic growth, according to Fitch Ratings'
quarterly investor survey. There are also concerns that value will be reassessed given rising
Almost three-quarters of survey respondents (74%) ranked eurozone volatility as a high risk
to continued healthy European high-yield issuance. Slow economic growth was a close second, with
68% of investors voting this a high risk factor. Developed market non-financial new issuance in
the first nine months of 2012 was up 23% compared with the same period in 2011, according to
Investors also flagged that some sector-specific factors have the potential to dampen the
high-yield party. More than half (51%) see a high risk that issuance volumes will suffer as
investors reassess value given rising default risk. Survey respondents were less acutely
concerned by secondary market illiquidity and the crowding of portfolios by issuers from
peripheral eurozone countries, where sovereign downgrades could lead to corporates being
downgraded and joining non-investment grade indices. A significant minority (about 30%),
however, ranked these factors as "high" risks.
We believe primary market trends reflect investor preferences for higher quality 'BB'
category issuance from core economies and defensive sectors offering modest leverage, high
recovery and short duration instrument profiles. These characteristics have kept default rates
low. The outlook for default rates remains modest even in a low growth environment, given the
broader market mix of European global champions and domestic incumbents.
While secondary market spread compression may lead to riskier issuance by sector and
instrument, any material shift towards a riskier market should be tempered by rising investor
fears over eurozone volatility and growth. The cycle where spreads widen and issuance slows
would then be repeated.
The Q412 survey was conducted between 2 October and 6 November and represents the views of
managers of an estimated USD7.4 trillion of fixed-income assets. We will publish the full survey
results in mid-November.