Credit investors see defaults rising, 84% chance of US recession
Credit spreads are also expected to move higher
Washington: Credit portfolio managers are forecasting a rise in corporate defaults in the coming year while more than four-out-of-five participants see a chance of a US recession in 2023, according to a survey by the International Association of Credit Portfolio Managers.
The poll found that 81 per cent of fund managers see defaults picking up in the next 12 months, compared with 80 per cent in the survey last December, as reduced bank liquidity and credit risk concerns land on top of macroeconomic issues. For North American corporates, 86 per cent of respondents see defaults rising, while 91 per cent see defaults rising in Europe.
“Our members have expected to see the impact of rising interest rates for some time and we’re beginning to see more credit stress and defaults in corporate borrowers now,” Som-lok Leung, IACPM’s executive director, wrote in a statement. “Unfortunately, this could take some time to work its way through the system.”
Survey respondents are also predicting a recession in the US, with 84 per cent expecting one to occur sometime this year. That’s higher than the 61 per cent of participants who see a recession this year in Europe and the UK.
Credit spreads are expected to move higher, with almost 60 per cent of participants seeing North American credit spreads widening over the next three months and 80 per cent of participants forecasting high-yield spreads rising.
IACPM survey participants see certain industries like health care, medium-sized tech companies and defense manufacturers facing tough times in the current environment. Commercial real estate was also cited, given work-from-home trends lowering office occupancy rates and property owners having to refinance in a higher interest rate environment.
The IACPM is composed of more than 130 financial institutions across 30 countries and its members include portfolio managers at commercial banks, investment banks and asset managers, the organization said on its website.