Credit Market Research
www.fitchratings.com 17 August 2011
European Senior Fixed-Income Investor Survey Q311
Investors Cut Expectations, Reassess Risks
Fitch Ratings latest quarterly survey (Q311) of fixed-income investors acrossEurope shows that, even before the early August market turmoil, investors had already sharplydowngraded their expectations for most fixed-income segments. Responses to the survey,which was conducted in the four weeks ending 29 July, reflected a greater aversion to risk, withmore negative expectations about credit fundamentals (Figure 1), issuance volumes andspreads.
Economic Growth Concerns:
Investor sentiment remains muted on growth prospects fordeveloped markets, in contrast to the optimism around emerging markets. The survey showsEuropean investors remain very bearish on the outlook for the European economy in the nextyear, with almost three-quarters of respondents expecting growth at below 2%. This sharplycontrasts with virtually all respondents expecting expansion by over 2% for emerging markets.
Reduced Risk of Inflation:
Expectations of inflation fell to their lowest point since Q410, with46% of participants expecting an increased risk from higher price levels, compared to a peak of68% in Q211. The result marks a turning point in expectations about inflation, which has beenon an upward path in consecutive quarters since Q310. This switch is likely to reflect increasedfears over the likelihood of a double-dip recession, with the proportion of investors ranking thisas a high risk threat to credit markets almost doubling to 40% from 21% in the prior quarter
Investment-grade non-financial corporates took top spot asthe most favoured asset class, while the higher yielding speculative-grade corporate segmentmoved to second place. Cash also found favour, rising to joint third from sixth position in thelast quarter.
A majority of investors are expecting a slowdown of flows into fixed income. Overthe first half of 2011, funds focused on European debt have experienced regular outflows, whilehigh-yield, emerging-market and global-bond funds attracted investors in search of eitherhigher returns or safety away from the euro zone. The only novelty is the reversal of fortune ofhigh-yield funds, which saw outflows in June.
-0.4-0.3-0.2-0.10.00.10.20.3Sovereign -developedSovereign -emergingInvestment-grade -financialsInvestment-grade - non-financialsSpeculativegradeEmerging-marketcorporateStructuredfinance+1= Most optimistic-1= Most pessimisticMinimumMaximumCurrentPrevious
P e s s i m i s m O p t i m i s m
ª See Appendix for methodology and interpretation notes; scoring for data from six quarterly surveys betweenQ210-Q311, inclusiveSource: Fitch
Investor Sentiment Scaleª - FundamentalCredit Conditions Outlook
Aggregate score, and historical range, by asset class
The Fitch Ratings Senior Fixed-Income Investor Survey wasestablished in 2007 and this is the14
edition. This survey garnered 93responses, representing the viewsof managers of an estimatedUSD4.3trn of fixed- income assetsduring the period 29 June to 29 July2011. Over 80% of respondentswere, by job function, fixed-incomeportfolio and investment managers,heads of fixed-income research, orstrategy, asset allocation, or othersenior managers from the largestasset management companies inwestern Europe. The balance wasrepresented by senior credit orsovereign analysts (please refer tothe appendix for more details).
Monica Insoll+44 20 3530 firstname.lastname@example.orgMichael Larsson+44 20 3530 email@example.com
Charles Marling+44 20 3530 firstname.lastname@example.org