Credit investors' outlook is at its worst in recent history, according to the most recent J.P. Morgan credit client survey. It found 35% of investors expect credit spreads to widen, which is the highest reading in the survey's five-year existence. The survey polls 50 of the largest U.S.-based credit investors every two weeks and showed 35% were underweight credit, up from 27% the previous report.
One high-grade portfolio manager agrees with the findings of the survey and said he sees no rally in sight. He had previously thought a pick-up in issuance could boost the market, but spread widening in conjunction with a relatively heavy $8.5 billion of fresh paper for the week ending May 13 eliminated that possibility.
The J.P. Morgan JULI, an index of liquid credits, widened three basis points that week and overhang from auto deterioration as well as fears pertaining to leveraged buy-outs and other shareholder initiatives remain. "It's not as though we're going to see Carl Icahn come out and say 'Okay, I'm done now,'" the investor quipped.
