Debt investors expect corporate defaults to increase during the next year as the Federal Reserve winds down stimulus measures and pushes interest rates higher, according an International Association of Credit Portfolio Managers (IACPM) survey.
The credit default outlook index, in which negative numbers indicate an expectation of higher defaults and deteriorating credit conditions, fell to -14.6 at the end of March from 4.5 in December, the group said in a statement today. IACPM's 93 members include banks, insurance companies, and asset managers in 17 countries.
The investors said interest rates that economists project will rise during the next five quarters will drive up funding costs and make it more expensive for companies to refinance debt, according to Som-lok Leung, IACPM's executive director. While that raises the risk of losses, the money managers are predicting demand for fixed-income assets will remain strong enough through June to reduce the extra yield investors demand to own the debt instead of Treasuries, he said.
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