October 17, 2014
Fitch says institutions are worried about refinancing risks as spreads widen.
European investors are increasingly worried about high-yield issuers’ refinancing risk, according to Fitch’s third-quarter investor survey. The rating firm found that 36 percent of fixed income investors with a total of EUR7.1 trillion of assets under management said high-yield issuers face the biggest challenges over the next 12 months, up from 11 percent in the second quarter.
Fitch says that investors are also downbeat about the outlook for fundamental credit conditions in high yield, with 57 percent expecting deterioration over the next year, compared to 31 percent in the second quarter. A total of 52 percent expect to see widening spreads over the same time-frame, up from 33 percent in the second quarter.
Fitch said that the asset managers are split over investing in high yield, with 21 percent saying the sector was their favorite and 20 percent saying it was their least favorite. Fitch said this reflects the search for yield versus credit concerns.
European junk investors lost 30 basis points in July after 12 months of gains, according to Bloomberg, while US junk investors lost 1.3 percent. European junk issuers have also seen their borrowing costs rise by 50 basis points since the beginning of July, to 4.15 percent, Bloomberg says.
Fitch’s third-quarter report will be published the week of October 20.