European Senior Fixed-Income Investor Survey Q311

8/6/2019 European Senior Fixed-Income Investor Survey Q311

1/12

Credit Market Research

www.fitchratings.com 17 August 2011

EMEA

European Senior Fixed-Income Investor Survey Q311Investors Cut Expectations, Reassess Risks

Special Report

Risk Aversion: Fitch Ratings latest quarterly survey (Q311) of fixed-income investors across

Europe shows that, even before the early August market turmoil, investors had already sharply

downgraded their expectations for most fixed-income segments. Responses to the survey,

which was conducted in the four weeks ending 29 July, reflected a greater aversion to risk, with

more negative expectations about credit fundamentals (Figure 1), issuance volumes and

spreads.

Economic Growth Concerns: Investor sentiment remains muted on growth prospects for

developed markets, in contrast to the optimism around emerging markets. The survey shows

European investors remain very bearish on the outlook for the European economy in the next

year, with almost three-quarters of respondents expecting growth at below 2%. This sharply

contrasts with virtually all respondents expecting expansion by over 2% for emerging markets.

Reduced Risk of Inflation: Expectations of inflation fell to their lowest point since Q410, with

46% of participants expecting an increased risk from higher price levels, compared to a peak of

68% in Q211. The result marks a turning point in expectations about inflation, which has been

on an upward path in consecutive quarters since Q310. This switch is likely to reflect increased

fears over the likelihood of a double-dip recession, with the proportion of investors ranking this

as a high risk threat to credit markets almost doubling to 40% from 21% in the prior quarter

Investment-Grade Corporates: Investment-grade non-financial corporates took top spot as

the most favoured asset class, while the higher yielding speculative-grade corporate segment

moved to second place. Cash also found favour, rising to joint third from sixth position in the

last quarter.

Fund Flows: A majority of investors are expecting a slowdown of flows into fixed income. Over

the first half of 2011, funds focused on European debt have experienced regular outflows, while

high-yield, emerging-market and global-bond funds attracted investors in search of either

higher returns or safety away from the euro zone. The only novelty is the reversal of fortune of

high-yield funds, which saw outflows in June.

Figure 1

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

Sovereign -

developed

Sovereign -

emerging

Investment-

grade -

financials

Investment-

grade - non-

financials

Speculative

grade

Emerging-

market

corporate

Structured

finance

+1= M ost o ptimistic

-1= M os t pessimisticM inimum

M aximum

CurrentPrevious

Pessimism

Optimism

See Appendix for methodology and interpretation notes; scoring for data from six quarterly surveys between

Q210-Q311, inc lusive

Source: Fitch

Investor Sentiment Scale - FundamentalCredit Conditions OutlookAggregate score, and historical range, by asset c lass

Survey BackgroundThe Fitch Ratings Senior Fixed-Income Investor Survey wasestablished in 2007 and this is the14th edition. This survey garnered 93responses, representing the viewsof managers of an estimatedUSD4.3trn of fixed- income assetsduring the period 29 June to 29 July2011. Over 80% of respondentswere, by job function, fixed-incomeportfolio and investment managers,heads of fixed-income research, orstrategy, asset allocation, or othersenior managers from the largestasset management companies inwestern Europe. The balance wasrepresented by senior credit orsovereign analysts (please refer tothe appendix for more details).

Related Research

Senior Fixed Income U.S. Investor SentimentSlips on Growth (July 2011)

The Credit Outlook - Fragility andInterconnectedness (July 2011)

Predictive Accuracy Analysis of FitchEuropean Fixed-Income Investor Survey(July 2011)

Europe Senior Fixed-Income Investor SurveyQ211; High-Yield Optimism Fades(May 2011)

European Mutual Funds: A New Force inCredit (May 2011)

Analysts

Monica Insoll+44 20 3530 [email protected]

Michael Larsson+44 20 3530 1260

[email protected]

Investor ContactCharles Marling+44 20 3530 [email protected]
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European Senior Fixed-Income Investor Survey Q311August 2011

2

Economic Growth Fears

European investors are pessimistic about the outlook for economic growth for the region

between now and mid-2012. Almost three-quarters of survey respondents said that they

believe European growth will be weak, at below 2%, while the balance expected GDP to

increase only by a moderate 2%-3%.

In the recent Fitch/Fixed-Income Forum US investor survey, conducted in June, US investors

expressed even more pessimistic forecasts for Europe. In response to the same question, 88%

of US respondents said Europe would grow by less than 2%.

European survey participants were slightly less negative on the prospects for the US, although

a majority of 56% still anticipated growth below 2%. US investors were somewhat less harsh in

judging the outlook for their domestic economy, with a minority, 47%, believing growth would

be weak at below 2%.

Common ground was most evident on the future fortunes of emerging-market economies, with

virtually all respondents in both Europe and the US expecting expansion by over 2%. Just over

one-quarter thought growth would exceed 4%.

On the impact to financial stability from a default on Greek sovereign debt, 91% of respondents

viewed the risk as moderate to high.

Figure 2

0

10

20

30

4050

60

70

80

United States Europe Emerging

markets

United States Europe Emerging

markets

3%

What is the Outlook for Economic Growth Across the Following Regions Over

the Next 12 Months?

(%)

Source: Fitch

European investors' view US investors' view

Confidence Dented on Credit Fundamentals

The latest results display a marked reassessment of investor opinions about credit conditions

across all asset classes. The Investor Sentiment Scale (Figure 1) shows current aggregate

scores (red dots) in negative (ie, pessimistic) territory for all asset classes a distinct shift fromthe position in the last quarter (gold rings).

The ratio of investors expecting an improvement in current fundamental credit conditions was

outnumbered by those expecting deterioration (0.6:1), representing a noticeable reversal from

the ratio 1.6:1 recorded in the prior two quarters. The largest erosion in sentiment was

observed for banks, with developed market sovereign debt (already firmly established in

negative territory for many quarters) experiencing the smallest decline.

Investor expectations for emerging-market (EM) corporate credit finally capitulated (0.9:1 from

2.5:1 in Q211), breaking lower from consistently bullish expectations over the prior four

quarters (Figure 5). Sentiment for high yield (HY) extended its downward trajectory (0.5:1

compared with 1.7:1); a trend that started in the last quarter, and which is reflected in recentfund flow data (see page 5).

Figure 3

High

46%

Low

9%

The Risk of a Greek

Sovereign Default Posing

Systemic Threat to

Financial Stability Across

the Eurozone is

Source: Fitch

Medium

45%

These findings support Fitchs viewthat emerging-market dynamism is

still the main driver of the globalrecovery. However, as the agencynoted in its latest Global EconomicOutlook report, emerging-marketgrowth will slow from 2010s levelsfollowing a tightening in emerging-market monetary policy and theslowdown in so-called advancedcountry economic growth.

David Riley, Head of GlobalSovereign Ratings, Fitch


3/12



3

Figure 4

13

1

11

1

7

1

3

49

31

42

23

31

30

31

18

47

20

53

44

42

49

16

20

25

23

19

24

16

3

1

2

2

0

0

0

0 10 20 30 40 50 60 70 80 90 100

Sovereign-developed market

Sovereign-emerging market

Investment grade-financials

Investment grade-non-financials

Speculative grade

Emerging market corporate

Structured finance

Deteriorate significantly Deteriorate somewhat Stay the same

Improve somewhat Improve significantly

Over the Next 12 Months, Fundamental Credit Conditions in the Following

European Asset Classes Will (Q311)

Source: Fitch(%)

Higher Issuance to Prevail Despite Spread WideningInvestors trimmed expectations on issuance volumes from the prior quarter, but maintained

their bullish stance overall. Across the board, respondents anticipating higher issuance

volumes outpaced those foreseeing a decline by 2:1; down from 3.4:1 in Q211.

Figure 6

1

0

0

0

1

0

2

15

13

21

23

13

6

22

38

58

40

54

49

52

52

45

27

36

21

32

38

23

0

1

3

4

1

2

4

0 10 20 30 40 50 60 70 80 90 100





Speculative grade


Structured finance

Decrease by more than 25% Decrease by up to 25%Remain similar to LTM volumes Increase by up to 25%Increase by more than 25%

What Are Your Expectations for Issuance Over the Next 12 Months by the

Following Categories? (Q311)

Source: Fitch(%)

Banks and HY experienced the largest declines in expectations, with the ratio of those

expecting higher issuance to those expecting lower issuance falling to 1.8:1 and 2.5:1,

respectively, from 6.2:1 and 7.1:1 in the prior quarter.

In the year to date (as of 8 August), overall European debt issuance has been healthy, running

almost level with last year at USD2.7trn. Central government borrowing is down 15% at

USD988bn, although supranational issuance is up by two-thirds at USD137bn. Banks are

running 7% behind at USD764bn, but corporates are 11% ahead with USD249bn issued

(according to Dealogic data).

Developed-market (DM) sovereign debt continues to be perceived by investors as the asset

class posing the greatest refinancing risk, with 70% of respondents selecting it over other asset

classes (Figure 8). The result continues an upward trend that began in Q410, when the asset

class received 51% of responses, and represents a return to the higher levels of concern

observed in Q210, when markets were awakening en masse to the extent of the debt problems

facing sovereign borrowers in euro-zone economies. Views on the challenges to refinancing

bank debt are broadly unchanged from those in the prior quarter (Figure 9).

Figure 5

10

20

30

40

50

60

Q210 Q310 Q410 Q111 Q211 Q311

Spec grade EM

Banks(%)

Over the Next 12 Months,

Fundamental Credit

Conditions Will Improve

(Signif. + Somewhat)

Source: Fitch

Figure 7

0

12

34

5

2009 2010 YTD 2011

Corporates Financials

Sovereign Supras

Other

EMEA Issuance Volume2009 - YTD 2011 (Corporates,

Financials, CG and Supranationals)

(USDtrn)

Source: Dealogic; N.B. Europe constitutes

99% of EMEA issuance so far in 2011


4/12



4

The overall perception is that spreads will widen over the coming 12 months. The ratio of

respondents expecting tightening to those expecting widening dropped to 0.8:1, from 1.3:1 in

Q211.

Figure 10

13

1

12

3

7

1

7

34

32

33

19

32

30

26

24

39

16

43

36

33

51

25

28

30

33

22

36

14

4

0

9

0

2

1

3

0 10 20 30 40 50 60 70 80 90 100





Speculative grade


Structured finance

Widen significantly Widen somewhatRemain within recent ranges T ighten somewhatTighten significantly

What are Your Expectations for Spread Movement Over the Next 12 Months in

These Areas? (Q311)

Source: Fitch(%)

Figure 11

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

Sovereign -

developed

Sovereign -

emerging

Investment-

grade -

financials

Investment-

grade - non-

financials

Speculative

grade

Emerging-

market

corporate

Structured

finance

Investor Spread Expectationsb

Aggregate score, and historical range,

by asset class

+1= Greatest tightening

-1= Greatest widening

b See Appendix for methodology and interpretation notes; scoring for data from six quarterly surveys between

Q210-Q311, inclusiv e

Source: Fitch

M inimum

M aximum

CurrentPrevious

Widening

Tightening

Fund Flows Fixed-Income as a Challenging Asset Class

A majority of participants expect a slowing of inflows into European bond funds in H211 (Figure

12). Two-thirds of fixed-income investors surveyed expect lower inflows into European bondfunds. This includes 9% of the survey participants who foresee a more dramatic exodus into

cash, gold or higher yielding assets. Despite more recent market volatility the results suggest

that investors already had ongoing concerns about fixed income as an asset class.

A quarter of investors expected no significant reallocation of money during H211, while 7%

thought the slowing of inflows would reverse quickly. This result shows a continuation of

investor sentiment from Fitchs survey in January this year, when investors expressed a

cautious outlook for the asset class, with 68% anticipating a continued slowing of inflows into

fixed income during 2011.

Data from Lipper show that Europe-domiciled mutual funds that focus on European IG have

experienced estimated net outflows of EUR4.3bn during the first half of 2011. The redemptionshave been offset by net inflows of EUR5.1bn into similar funds investing in European HY debt.

However, the appeal of European HY as a destination for investor capital showed signs of

waning in June when investors are estimated to have redeemed net funds of EUR1.1bn.

Figure 8

70

2

18

0

2

1

7

0 10 20 30 40 50 60 70

Sov. DM

Sov. EM

IG - fin.

IG - non-fin.

Spec. grade

EM corp.

Struct. fin.

The Greatest Refinancing

Challenge Over the Next 12

Months Will be Faced by

(Q311)

Source: Fitch (%)

Figure 9

5

15

25

35

45

55

65

75

Q210 Q310 Q410 Q111 Q211 Q311

Sov DM Banks(%)

The Greatest Refinancing

Challenge Over the Next 12

Months Will be Faced by

Source: Fitch

There is a high level of correlationbetween equity, credit spreads and,more recently, government bonds.This reflects the current general riskon/risk off regime and the end of thestatus of government bonds as risk-free assets. With inflation risk andunconventional monetary policies,investors face low risk/returnprospects with bonds and someincreasingly turn to currencymarkets to find safe havens andplay global imbalances.

Aymeric Poizot, Senior Director,Fund and Asset Managers, Fitch


5/12



5

European IG mutual funds benefitted from heightened investor risk aversion in June, seeing net

inflows for only the second time this year. This recent shift away from HY and into IG is

confirmed by survey data (Figure 14), which indicated in Q211 the onset of declining interest in

HY relative to IG; the latter clinching most favoured asset class for the first time in Q311.

Figure 12 Figure 13

A slowing

of inflows

into bond

funds

58%

Expectations of European Bond

Fund Flows for H2 2011

Source: Fitch

No significant

reallocation of

money

26%

A massive exodus

from bonds into

cash/gold or higher

yielding assets

9%

Strong net

inflows into

bond funds

7%

-5

5

15

25

35

45

55

2008 2009 2010 Q111 Q211 H111

High yield Inv. grade

European Bond Funds - Net FlowsFor Europe-domiciled mutual funds, 2008 -

end Jun 2011

(EURbn)

Source: Lipper, Fitch

Incremental Investment Index

IG non-financials took top spot as the most favoured asset class, taking 18% of investor votes

the same proportion as recorded the last quarter. Speculative-grade corporates move to

second place, with 16% of votes, down from a top-placed score of 21% in Q211. Banks, Cash

and DM sovereign debt all take third place with 13% of votes (cash being the only riser of the

three over the quarter). Overall, investors show limited conviction in the upside, with votes

distributed across all asset classes.

Figure 15

7

17

16

12

13

18

16

3

13

3

12

4

38

3

13

11

0 10 20 30 40 50 60





Speculative grade

Emerging-market corporate

Structured finance

Cash

Least favoured Most favoured

If You Had EUR1 to Invest Today, Which Would be Your Most and Least

Favoured Choice Respectively? (Q311)

Source: Fitch (%)

Banks, High-Yield Loss Expectations Jump

Overall, a greater proportion of investors expect higher collective future losses from the asset

classes (Figure 16). Banks saw a marked rise in expectations about future losses, with 31% of

respondents now anticipating more losses, up from 11% in Q211. HY experienced a similarly

large move higher to 24%, a doubling of the figure recorded in the earlier quarter.

Despite the gloom surrounding DM sovereign debt, fewer respondents expect future losses

from this asset class compared to the last quarter down to 49% from 54% in Q211

(Figure 17).

Figure 14

5

15

25

35

Q210 Q320 Q410 Q111 Q211 Q311

Speculative grade

EM - co rporate

Investment-grade - financials

Investment-grade - co rporates(%)

Most Favoured Asset

ClassesResponse rate relative to other

credit classes

Source: Fitch


6/12



6

Figure 16

49

20

31

11

24

18

19

38

29

42

33

42

41

43

12

51

27

56

34

41

37

0 10 20 30 40 50 60 70 80 90 100





Speculative grade


Structured finance

We are yet to see the peak of the loss-taking

We are in the middle of the loss-taking

We are past the worst of the loss-taking

What are Your Expectations for Default/Market Driven Losses? (For Financial

Institutions, Read Loss Disclosure, for Corporates and Structured, Read Loss

Taking for Investors) (Q311)

Source: Fitch(%)

Fears Mount Over Double-Dip RecessionThe sharpest rise in sentiment about risks to the European credit markets comes from fears

over the likelihood of a double-dip recession, votes for which almost doubled to 40% from 21%

in the prior quarter.

Concerns over the withdrawal of central bank monetary easing dropped by more than one-half,

to 30%, from 61% in Q211. The US Federal Reserves USD 600bn QE2 programme ended on

30 June, with this survey conducted in the four subsequent weeks.

European sovereign debt problems continue to present the greatest risks in investors minds,

taking an overwhelming 98% of the vote, up from 89% in Q211.

Figure 18

34

2

39

70

66

35

40

98

61

30

65

60

0 10 20 30 40 50 60 70 80 90 100

Double-dip recession

Sovereign debt problems

Geopolitical risk

Withdrawal of central bank credit market easing/QE

Anticipation of Basle 3/regulatory overhaul

Chinese monetary tightening

High Low

Please Rate the Degree of Risk Posed by the Following Factors to the

European Credit Markets Over the Next 12 Months (Q311)

Source: Fitch (%)

Inflation Expectations Shift Lower

Fears over global growth led to a sharp downward revision in expectations for inflationary risks,

in line with rising expectations of a double-dip recession. Respondents citing inflation as posing

a greater threat than deflation over the coming 12 months declined to 46%, from 68% and 55%

in Q211 and Q111, respectively (Figure 19). The result snaps an upward trend that began in

Q310. Only 22% of investors see deflation as posing a risk, up marginally from 19% in Q111.

Figure 17

0

10

20

30

40

50

60

Q210 Q310 Q410 Q111 Q211 Q311

Sov DM Banks HY

(%)

What are Your

Expectations for Default/

Market Driven Losses? (ForFinancial Institutions, Read

Loss Disclosure, for

Corporates and Structured,

Read Loss Taking for

Investors)

Source: Fitch


7/12



7

Figure 20

78

32

81

46

22

68

19

54

0 10 20 30 40 50 60 70 80 90 100

Inflation Q311

Deflation Q311

Inflation Q211

Deflation Q211

High Low

As Central Banks and Governments Balance Their Pressing Priorities,

How Serious is the Risk of Inflation or Deflation Respectively Over the

Next 12 Months? (Q311) vs. (Q211)

Source: Fitch (%)

Corporate Fundamentals to Weaken

The previously net positive outlook for corporates came to an end in Q311, with the ratio of

investors expecting improving credit conditions to those expecting a deteriorating environmentdropping to 0.4:1 from 1.2:1 in the prior quarter (Figure 21). The steepest declines were

observed in telecoms and media and manufacturing sectors, whilst the retail and consumer

segment continued to be of greatest concern to investors.

The view of those survey respondents with a focus on corporates (specialists view) was

marginally more negative (Figure 21a). Two-thirds (67%) of corporate-focused investors expect

the retail and consumer sector to experience deteriorating fundamentals over the next 12

months, compared to 53% of the full sample. Appendix 1 provides details of the sample of

respondents, and their primary areas of focus (Figure A3).

Figure 21

4

0

1

0

49

31

30

41

34

51

51

45

12

18

16

14

0

0

2

0

0 10 20 30 40 50 60 70 80 90 100

Retail,leisure&consumerproducts

Energy/utilities

Industrials/manufacturing

Telecoms/media

Deteriorate significantly Deteriorate somewhatStay the same Improve somewhatImprove significantly


European Industries Will.(Q311)

Source: Fitch(%)

Figure 21a

4

0

4

0

63

33

33

38

25

50

50

50

8

17

13

13

0

0

0

0

0 10 20 30 40 50 60 70 80 90 100

Retail,leisure&consumerproducts

Energy/utilities

Industrials/manufacturing

Telecoms/media

Deteriorate signif icantly Deteriorate somewhat Stay the same

Improve somewhat Improve significantly


European Industries Will.(Q311) - Specialists' View

Source: Fitch(%)

Figure 19

10

20

30

40

50

60

70

Q210 Q310 Q410 Q111 Q211 Q311

Inflation Deflation(%)

High Risk of Inflation or

Deflation Respectively

Over the Next 12 Months?

Source: Fitch


8/12



8

IG and EM to Experience Tighter Lending

The majority of respondents expect IG and EM corporates to face tight or tightening lending

conditions, a reversal from the situation in the prior quarter, when the majority expected further

loosening. IG experienced the greatest shift in sentiment, with 68% of investors expecting tight

conditions to persist or to get more stringent up from 44% in the last quarter.

Figure 22

9

28

15

22

59

53

53

61

31

18

32

17

1

0

0

0

0 10 20 30 40 50 60 70 80 90 100

Investment-grade corporates

Speculativegradecorporates

Emerging-market corporates

SMEs

Standards will tighten further Standards will remain moderately tight

Standards will loosen moderately Standards will loosen significantly

What is Likely to Happen to Commercial Bank Lending Conditions in Europe

Over the Next 12 Months? (Q311)

Source: Fitch(%)

Cash Barrier

Amidst rising uncertainty in global markets, respondents indicated an expectation that

corporate entities would reign in cash spending on shareholder-orientated activities (Figure 23),

and instead place more focus on defensive actions, such as maintaining cash positions or

deleveraging. With respect to cash, 81% of respondents expect companies to maintain

cushions, rising from 66% in Q211 (Figure 24).

Despite the rise in expectations of defensive positioning by companies, overall expectations ofcash usage on factors aimed directly at growth or increasing shareholder value (capex, share

repurchases, dividend payments and M&A) continued to outnumber those expecting limited to no

use of cash in these areas by 2.2:1, although down from 4.6:1 on the last quarter.

Figure 25

4

13

14

18

14

37

57

52

63

56

56

44

36

26

22

26

28

14

3

9

1

1

2

4

0 10 20 30 40 50 60 70 80 90 100

Capex

Share repurchase

Dividends

M&A

Debt amortisation/pay downs

Maintain cash cushion

Significant Moderate Limited Not at all

How Do You Expect European Firms to Use Cash Over the Next 12 Months?

(Q311)

Source: Fitch(%)

Macroeconomy Key for Bank Debt Strength

Concerns over access to funding and the macroeconomy continue to rise, with 52%

considering the former to be critical to the credit quality of banks, up strongly from 35% in the

last quarter. The vast majority (90%) identify access to funding to be either critical or important

to bank credit quality, with 84% highlighting macroeconomic effects (Figure 26).

Figure 23

30

50

70

90

Q110Q210Q310 Q410Q111Q211Q311

CapexShare repurchase

DividendsM&A(%)

Significant/Moderate

Focus of Cash Spend Over

the Next 12 Months?

Source: Fitch

Figure 24

60

70

80

90

100

Q110Q210Q310Q410Q111Q211Q311

Debt amortisation/pay downs

Maintain cash cushion(%)

Significant/Moderate

Focus of Cash Spend Over

the Next 12 Months?

Source: Fitch


9/12



9

Figure 26

26

8

26

5

52

58

41

48

56

38

14

45

22

37

8

6

4

1

0

0

0

3

2

0

0

0 10 20 30 40 50 60 70 80 90 100

Macroeconomy

Stimulus/QE withdrawal

Regulation

Commercial property exposure

Access to funding

Critical Important Limited Neutral Irrelevant

How Important are the Following Risks to Banks' Credit Quality Over the Next

12 Months? (Q311)

Source: Fitch(%)

Figure 26a

18

6

47

6

59

82

41

47

71

24

0

47

6

24

6

6

0

0

0

0

0

12

0

0

0

0 10 20 30 40 50 60 70 80 90 100

Macro

Stimulus/QE withdrawal

Regulation

Commercial property exposure

Access to funding

Critical Important Limited Neutral Irrelevant

How Important are the Following Risks to Banks' Credit Quality Over the Next

12 Months? (Q311) - Specialists' View

Source: Fitch(%)

Of the respondents with a particular focus on the banking sector (specialists view), the results

differed marginally, with 100% seeing the macroeconomy as having an important or critical

impact on the quality of bank debt, and regulation as the second most important factor (94%)

Figure 26a. Access to funding remains the factor with the highest number of votes (59%)

identifying it as critical.


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10

Appendix 1

Description of Respondents

Figure A1

72

14

49

75

115 8

0

10

20

30

40

50

60

70

80

Traditional asset

management company

Insurance company Pension fund Bank

Q311 Q211Which of the Following Best Describes Your Firm?(%)

Source: Fitch

Figure A2

42

9

2228

49

8

2023

0

10

20

30

40

50

60

More than USD100bn USD50bn-USD100bn USD20bn-USD50bn Up to USD20bn

Q311 Q211

Which of the Following Best Describes the Amount of Fixed-Income Assets

Under Management at Your Firm?

(%)

Source: Fitch

Figure A3

05

10

15

20

25

30

Corporate debt -

financial institutions

Corporate debt -

industrials

Structured debt Sovereign debt All

Which of the Following is Your Primary Focus (Q311)?

(%)

Source: Fitch


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11

Appendix 2

Quantifying Aggregate Sentiment Levels and Spread Expectations

The Investor Sentiment Scale chart on page 1 and the chart of investor spread expectations on

page 4 are digital representations of investor expectations for fundamental credit conditions

and spread movements, respectively, over the next 12 months. Respondents are asked toselect responses from a pre-defined set of categories, which are subsequently assigned scores.

Investor Sentiment Scale: Deteriorate significantly [2]; ii) deteriorate somewhat [1]; iii) stay

the same [0]; iv) improve somewhat [+1]; and v) improve significantly [+2].

Investor Spread Expectations Scale: Widen significantly [-2]; ii) widen somewhat [-1]; iii)

remain within recent ranges [0]; iv) tighten somewhat [+1]; and v) tighten significantly [+2].

Scores are summed within each asset class and remapped onto a linear scale ranging from -1

to +1, representing most negative and most positive expectations of credit spread movement,

respectively.

InterpretationEach chart displays current and previous survey expectations (see red dots and gold rings,

respectively) for each asset class, relative to the historical range of sentiment scores collected

over the period Q210 to Q311. Solid bars define the maximum-to-minimum range of scores,

where shorter bars reflect smaller variations in opinions for each asset class, across time.


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European Senior Fixed-Income Investor Survey Q311 12

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European Senior Fixed-Income Investor Survey Q311