The latest survey of European fixed-income investors from Fitch Ratings finds that he timing of central banks’ exit from extraordinary monetary policy support is at the forefront of their minds.
The rating agency reports that withdrawals of quantitative easing (QE) measures, as well as policymakers’ progress on eurozone banking union, are at the front of investors’ minds.
Overall, investors trust that the central banks will manage a smooth exit from their QE policies. The survey found that although they “certainly see the risk of winding down monetary stimulus as a big challenge, most survey participants (73%) believe central banks will tighten policy without threatening the economic recovery.”
However, QE exit plans are causing investors concern about liquidity for emerging markets (EMs), Fitch notes. It says that 66% of investors expect this to drive volatility in EM bond fund flows for the remainder of this year. And, about a fifth of investors say that flows will decrease due to greater concerns over political risk.
On the issue of progress towards full eurozone banking union, Fitch says that investors do not think it will reduce default risk for banks. It reports that only 28% are optimistic that the regulation shift will reduce default risk. Nevertheless, investors are more positive towards banks in general, it adds. “The sector is the most overweight of all corporate sectors in investor portfolios and the second most favoured marginal investment choice behind high yield,” it says.
The latest survey was conducted between July 1 and 31. It represents the views of managers of an estimated €5.6 trillion of fixed-income assets.