Credit Market Research
www.fitchratings.com 25 May 2010
EMEA Special Report
European Senior Fixed Income Investor SurveyQ210
The results of Fitch Ratings’ latest survey of fixed income investors across Europe clearly capture therising worries about the euro zone. Conducted during April 2010, the survey preceded the EU/ECB/IMF support packageannounced on 10 May, which resulted in the faltering of the 14monthlong credit rally.
Intensifying investor concerns regarding developedmarket sovereigns are expressed throughout the survey results.
Respondents believed this bedrock asset class would have by far the biggest difficulty refinancing debt, against a backdropof an expected weakening in credit fundamentals due to rising budget deficits and debt. Survey participants signalled thatgovernments will face higher funding costs amid a rising concern over future defaults and losses.This pessimism contrasts sharply with the more generally enthusiastic outlook for most other asset classes. Credit profilesare anticipated to strengthen further, and confidence has grown over whether the losstaking is over. Investors perceive that
commercial lending conditions will loosen further, except in the small and mediumsized enterprise (SME) segment.
However, in a sign of the contagion risk of sovereign concerns, survey participants indicated that the broad spread
tightening observed since mid2009 is reversing for most asset classes.
The corporate sector is expected to continue to hoard cash and repay debt, and capex is viewed as a low priority. There isgreater conviction that companies will engage in merger and acquisition activity, although investors expect deals to befinanced by a mix of debt and equity, protecting credit profiles.Expectations have fallen for credit strength in financial institutions, driven partly by concerns relating to the impact of newregulation. At the same time, respondents became more bullish on the prospects of a loosening in the lending standards of commercial banks.
7038260110 20 40 60 80 100Sovereign developed market
Sovereign emerging market