Fitch Ratings' 1Q15 European senior fixed-income investor survey shows that the ECB's unprecedented EUR1.1trn quantitative easing (QE) programme, to be launched today 9 March, will drive an intensification in investors' search for yield.
With QE expected to create a shortage of government bonds and an increasing amount of these already yielding negative, investors are piling into corporate bonds. Survey respondents expect spread tightening for both investment grade and high yield corporates. High yield remains the most favoured marginal investment choice, with 25% of votes, pulling ahead of financials with which it shared the lead last quarter. Investment-grade corporates is the new runner-up with 21% of votes. Investors are optimistic on fundamentals in the sector, with the exception of the energy & utilities segment.
However, the quest for returns is not boundless and investors are cautious on fundamentals for emerging markets in a world of monetary policy divergence. An overwhelming 84% of survey participants believe the strong US dollar will cause country-specific emerging market financial stress. Investors also express more pessimistic expectations for both sovereign and corporate emerging markets in terms of fundamentals and spreads.
Survey respondents identified the emerging market corporate sector as the most exposed to refinancing risk, with 42% of investor votes, ahead of emerging markets sovereigns and high yield. This was a sharp rise from 33% in our October survey. Emerging markets corporate is also the least favoured marginal investment choice.
Fitch's 1Q15 survey was conducted from 6 January to 23 February. It represents the views of managers of an estimated EUR8.2trn of fixed-income assets.
