Portfolio managers expect worse credit conditions in Q3, survey shows

By Matt Tracy

(Reuters) - Portfolio managers at the world's largest global financial institutions expect credit conditions to worsen over the next three months, according to a survey by the International Association of Credit Portfolio Managers.

In a quarterly survey of portfolio managers at 144 financial institutions published Thursday, the IACPM reported an increase in expectations of a rise in corporate defaults and wider credit spreads.

The IACPM's Aggregate Credit Default Index fell to minus 44.1 at the beginning of the third quarter, from minus 36.5 in the second quarter. The negative number signals an overall expectation of higher defaults and wider spreads.

The survey's results come amidst an elevated interest rate environment in the U.S. and other countries, driven by central banks' fight against persistent inflation.

Forecasts for wider spreads, or higher borrowing costs, typically mean expectations for credit conditions to worsen, Som-lok Leung, IACPM's executive director, said in a press release.

“Interest rates have stayed higher for longer and borrowers are beginning to feel the pinch, alongside the difficulties posed by continuing inflation,” Leung added.

In addition to inflation, portfolio managers are also focused on geopolitical tensions in the Middle East and other areas, the IACPM said.

In one more upbeat note, the majority of respondents said they do not expect recessions to occur in the U.S. or other regions, for the first time in several quarters' surveys.

(Reporting by Matt Tracy; Editing by Andrew Heavens)

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