US Senior Fixed Income Investors More Optimistic on Economy, Credit

Location: New York
Author: Brian Bertsch
Date: Monday, March 7, 2011

Optimism has increased among U.S. senior fixed income investors with views turning more constructive on economic growth, lending, and fundamentals across multiple asset classes, according to the most recent Fitch Ratings/Fixed Income Forum (FIF) Survey of Senior Investors. The survey was conducted from mid-January to mid-February, 2011.

Survey participants raised their growth forecasts for the U.S., Europe, and Emerging Markets. Emerging Market prospects were already in bullish territory in the June 2010 edition of the Fitch/FIF survey but opinions turned decidedly more favorable for both the U.S. and Europe. In the June 2010 survey, 7% of respondents placed U.S. growth at 3% or higher over the coming year; in the recent survey, that share rose to 43%.

Only 9% of investors saw continued easy monetary policy as critical to the U.S. recovery suggesting that many believe the recovery is becoming self-sustaining.

Respondents had a more sanguine view of lending conditions, with no one predicting tighter lending standards over the coming year and 77% expecting at least moderate loosening.

Asset-backed, corporate credit, prime mortgage-backed, and -- in a strong departure from the June 2010 Fitch/FIF survey, commercial mortgage-backed -- all had a majority of survey participants anticipating stronger fundamentals over the next 12 months.

'Fixed income investors expect not just stability but meaningful improvement across important economic and market fronts in 2011' said Mariarosa Verde, Managing Director, Fitch Credit Market Research. 'They are also notably more concerned about the health of the labor market than near term inflation pressures.'

In line with bullish responses offered on corporate strategy, growth, and lending, investors are now more concerned about credit erosion associated with shareholder-oriented transactions rather than recession related event risks such as the failure of another financial institution. When asked to comment on specific sectors, a majority of investors saw credit improvement for financials in 2011.

'Not surprising given a more robust outlook for the U.S. economy, survey participants held the most favorable views for cyclical corporate sectors' said Eric Rosenthal, Senior Director of Fitch Credit Market Research.

Full survey results are available on Fitch's web site at 'www.fitchratings.com'. The report is titled 'Senior Fixed Income U.S. Investor Optimism at a Three-Year High'.

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