US Credit Outlook on the Mend According to Senior Fixed Income Investors

The outlook for both the U.S. economy and the credit markets has much improved according to a recent survey conducted by Fitch Ratings in conjunction with the Fixed Income Forum. At mid-year 2009, the survey of senior fixed income professionals reveals a still gloomy but far less negative view of economic conditions and, in some pockets of the credit markets, optimism for a rebound in fundamentals over the coming year.

The new survey, completed in June, offers fresh perspective on the extent to which market anxiety has lifted from the depths of early 2009. The share of respondents placing the global recession's severity at very deep fell across all regions, especially with respect to the U.S. and emerging markets, with at least 23% of investors now believing that the recession in the U.S. will be mild going forward (up from 2% in January) while 43% hold such a view for emerging markets (up from 8% in January).

Importantly, opinions in certain investment areas showed the most positive views in several years. Roughly two thirds of investors, for example, believe that fundamental credit conditions will improve in the investment grade corporate sector in the coming year, double the January share. Opinions were similarly more robust across specific industries - especially with respect to the financial sector.

Investor responses also offered insight into near-term corporate strategy with most believing that debt reduction and maintaining a cash cushion will continue to be priorities.

Also noteworthy, in the January survey there was a split view on the issue of inflation or deflation as the greater risk going forward. In the new survey, 71% of investors placed inflation as the bigger threat.

In the June survey, investors were more concerned about government intervention than event risks such as the collapse of another financial institution.

Initiated in 2005, the bi-annual Fitch Ratings/Fixed Income Forum Survey provides insight into the opinions of professional money mangers regarding the state of the U.S credit markets. Responses were received from 131 senior investment personnel on their views of the economy, fundamental credit conditions across asset sectors and products, corporate strategies and other relevant topics.

The full results of the survey, in a report titled 'Sentiment Lifts Among Senior U.S. Fixed Income Investors - Credit Outlook on the Mend,' is available on the Fitch Ratings web site at www.fitchratings.com under Credit Market Research.