An increasing number of investors in European fixed income markets expect fundamental credit conditions will deteriorate across sectors, according to a Fitch Ratings survey.
The more circumspect sentiment was most notable for the sovereign segment, where the proportion of survey respondents anticipating worsening conditions more than doubled to 55%, from 24% in the last survey.
The gloomier outlook appears to reflect rising recession fears and low inflation expectations.
Nevertheless, the insatiable hunger for high yield (HY) continues, stoked by continued ultra-easy monetary policy. 27% of respondents voted HY their most favoured investment choice, down from 29% in the last quarter, but still clearly ahead of runners-up emerging-market (EM) corporates and banks. Investors expect the appetite for yield to be met by willing issuers in the HY and EM corporate segments; the only sectors which a majority of investors believe will see increasing issuance in the next 12 months. The HY issuance boom has been supported by historically low default rates.
Fitch conducted the Q213 survey between 3 April and 7 May. It represents the views of managers of an estimated EUR8.6trn of fixed-income assets. The full survey report is available here.