The latest survey by the International Association of Credit Portfolio Managers (IACPM) shows that portfolio managers at the leading global financial institutions anticipate a rise in business defaults and wider credit spread over the coming three months.
Portfolio Managers Foresee A Rise In Defaults During Q3
The IACPM’s Aggregate Credit Default Index for Q2 2024 is minus 44.1, compared to the minus 36.5 recorded for this year’s Q1. Som-lok Leung, the IACPM’s executive director, said:
Interest rates have stayed higher for longer and borrowers are beginning to feel the pinch, alongside the difficulties posed by continuing inflation.
This survey shows that the transportation, automotive, healthcare and commercial real estate sectors are among those feeling the pressure. According to the IACPM, “small borrowers” will be the first to default on their repayments and even larger organisations are starting to stagger in the current financial climate.
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Although these predictions cast a shadow over economic growth, many companies survived the pandemic, sticky inflation and persistently high interest rates. Leung added:
Survey respondents, who manage the risk in corporate loan portfolios, say borrowers are doing much better than expected when central banks began raising interest rates a few years ago. Companies are addressing risk and performing unexpectedly well.
Based on the survey data, North American investment grade debt is minus 23.5 compared to the last record of 11.4 at the end of March 2024. Europe’s current investment grade is minus 42.9 as opposed to the minus 15.4 tallied in the last survey.
