Fitch Ratings’ latest quarterly European fixed income investor survey, which closed on 4 May and represents the views of managers of an estimated USD5.6trn of fixed income assets, shows that investors expect a step-change in corporate funding methods.
More than one third (36%) of survey respondents said they expect that 2012 will see a transformation as the region’s corporates rebalance their funding towards the bond markets and reduce their reliance on struggling banks. The majority were more cautious in their outlook, anticipating that only a gradual shift towards debt capital markets will occur. However, no participant believed banks will retain their dominant share of corporates’ funding structures, even aided by cheap LTROs money. Among the participants focused on corporate debt, expectation for a new order was more strongly felt, with a 50/50 split between a step versus a gradual change.
Despite a negative ratings trend, corporates responded to tighter spreads and strong demand in the first quarter by raising EUR105bn in bonds – more than in any quarter since Q109, when EUR119bn was issued. The total amount raised represents 80% of the corporate universe bond maturities in 2012, indicating a level of pre-financing designed to relieve potential future funding pressures for some issuers in the event that market conditions become less amenable. Bond issuance moderated in April, with EUR22bn raised.
Survey respondents remained relatively constructive about investment grade corporates. Investor faith in the sector is partly driven by the prudent behaviour of corporate treasurers since the start of the eurozone crisis, including the strong focus on cash preservation. Survey respondents continue to expect firms to focus sharply on maintaining cash cushions and amortising debt, ahead of expenditure on capex, dividends, share buy-backs and M&A. Nevertheless, the sector, which steadily gained investor favour from end-2010, lost its "most favoured" top spot in the latest survey. As two-thirds of investors rated the risk of double-dip recession high for the third quarter running, this may partly account for the cooling sentiment towards the sector.
Established in 2007, Fitch’s quarterly European Senior Fixed Income Investor Survey is a leading indicator of investor sentiment that provides valuable insight into the opinions of professional asset managers regarding the state of the European credit markets.