European fixed-income investors were swept up on a wave of New Year enthusiasm in Fitch Ratings' latest quarterly investor survey.
Respondents turned much more positive on the prospect for eurozone sovereigns as well as for banks. Sentiment was more muted on non-financial corporates. Investors voted the high-yield sector their most favoured investment choice, while simultaneously signalling significant concerns about fundamental credit conditions.
Survey participants are not expecting a rapid rise in the inflation rate. This stance is reflected in respondents' views on the direction and pace of evolution of bond yields. Yields are at historical lows and for the first time in history, the safest core country government bonds have had prolonged negative real yields along the curve to 10 years. This reflects low inflation anticipation, monetary easing (US, UK and Japan) and the overall risk-off environment during most of the last three years, fuelling flight to quality.
Only a small minority of 8% expect a shock correction driven by flow reversal, credit deterioration and significant repricing of interest rates. The majority 57% believe the change will be gradual, as interest rates normalise incrementally. The remaining 35% said yields will remain stable or even decrease.
The Q113 survey was conducted between 4 and 31 January and represents the views of managers of an estimated USD7.6trn of fixed-income assets. The full report, entitled "European Senior Fixed- Income Investor Survey Q113", covers all major sectors. www.fitchratings.com.