World Economy

European Bond Investors Bearish

European Bond Investors BearishEuropean Bond Investors Bearish

European investors in fixed-income assets such as bonds have grown more bearish on a range of perceived risks to their market in 2016, according to a survey of senior investors in the market by Fitch, one of the big four credit-rating agencies.

In all, 64 of them responded, representing the views of managers of an estimated €8 trillion of fixed-income assets, NewsMarkets reported.

According to Fitch Ratings, the proportion of respondents saying the risk to European credit markets from prolonged economic weakness, eurozone sovereign-debt problems, geopolitics and emerging markets was higher than in its previous survey, conducted last October.

“Almost 77% of respondents said the risk from prolonged economic weakness was high, more than double the 36% who saw high risks from a prolonged recession in the fourth quarter of 2015 and the highest reading in three years. The same proportion saw the threat from geopolitical risk as high, up from 55%. And 65% cited adverse EM developments as a high risk, up from 59%,” Fitch reported.

A smaller proportion of investors said they were concerned about eurozone sovereign-debt problems, with 31% rating them as a high rather than a low risk in the latest survey. However, that was nearly double the proportion (16%) that saw them as a high risk in the final three months of last year.

Only 19% of respondents saw withdrawal of central bank credit-market easing/quantitative easing as a high risk, compared with 23% in the previous survey. “This is the only risk for which the proportion of respondents rating it high has fallen since the fourth quarter of 2015,” reports Fitch.

“Increased anxiety among European credit investors about other risks would be consistent with the ‘risk-off’ sentiment seen in financial markets during our January 7 to February 12 survey period. Volatility, a sell-off in risk assets and flows into safe havens at the start of the year were driven by inter-related concerns over growth, commodity prices, emerging-market vulnerabilities and policymakers’ ability to respond,” Fitch adds.

Respondents to the survey were not uniformly negative on the outlook for the world economy this year, however, Fitch said adding that 53% of survey respondents described themselves as bearish, citing the EM debt overhang and policy headwinds, but 47% said they were cautiously optimistic because stronger developed-market growth will offset an EM slowdown.

Moreover, Fitch itself is not forecasting a global recession, predicting that the world economy will grow by 2.5% this year. “Healthier labor markets and lower oil prices support consumer spending across the advanced economies, and many appear to be beyond the worst of the private-sector deleveraging that held back domestic demand in recent years,” it argues.