October 13, 2016 / 12:02 PM / 9 months ago

LPC-Economic, election, Brexit fallout to keep defaults high - survey

3 Min Read

NEW YORK, Oct 13 (Reuters) - Swirling uncertainties including global economic growth, central bank policies, the US elections and potential fallout from Britain's vote to exit the EU will spur corporate debt defaults and wider credit spreads, according to a quarterly International Association of Credit Portfolio Managers (IACPM) survey.

Most managers polled are anticipating more difficult credit conditions in every tracked category.

"Pretty much everyone is focused on macroeconomic issues and their institution's exposure to risky assets," Som-lok Leung, IACPM's executive director, said in a statement.

Demand for positive yields, amid a surge in global debt with low or negative yields this year, has broadened the reach for riskier asset classes where defaults are an increasing concern.

"Do they have enough liquidity? Do they have enough cash? And if they have enough cash, what do they do with it?" are among the widespread concerns, Leung said in a statement. "We've been muddling through but, clearly, most of the challenges are still with us."

The survey found that 57% of those polled expect credit spreads to widen for North American investment-grade debt and 70% see wider spreads for North American high-yield debt.

For European debt, 72% forecast wider investment-grade spreads, while 69% see wider spreads for high-yield spreads.

Two thirds of respondents see defaults rising for North American corporate debt, similar to the share expecting higher defaults for Asian corporate debt, while 58% expect higher defaults for European companies.

The overall IACPM 12-Month Credit Default Outlook Index continues to reflect widespread longer-term credit market concerns after sinking to a nearly seven-year low of -56.2 in the first quarter.

Negative numbers indicate expected credit deterioration with higher defaults and wider spreads.

The default outlook index reading of -48.1 for the third quarter indicates a more negative view than the -31.4 reading a year ago, but is improved from -52.8 in the second quarter.

With credit spreads expected to widen in all regions in the short term, the IACPM 3-month outlook index eroded to -47 in the third quarter from -39.7 in the previous quarter.

This outlook for wider spreads was less dour in the third quarter of last year, with the index at -7, before worsening significantly and driving down the gauge to -55 during the fourth quarter's heightened market volatility.

The last time the three-month spread outlook index was positive was in the first quarter of 2013 and the last positive reading on the 12-month default outlook index was in the fourth quarter of 2014. (Editing By Jon Methven)

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