July 18 - Som-lok Leung, executive director of the IACPM, says the recent rise in interest rates has made credit portfolio managers more cautious, but thinks defaults are normalizing after years of benefiting from easy monetary policy.
The end and the Fed's quantitative easing program maybe and sites and that's making some fixed income investors nervous. Some ugly on the executive director of the international association of credit portfolio managers. Joins me now with more good to see you thanks for inviting back so how much does this rise in interest rates through managers. Both certainly had an impact. Bill I would describe it less. Spooking them an orderly as normalizing. That we've seen a period of unprecedented low rates. Unprecedented default I think now if the Fed starts to ease back bet things will just normalized -- more. Are -- we have started to see an improvement outlook for defaults that was the story as of late but that shift pretty markedly this quarter. Tell me a little bit about what's happening. In terms of that statistic. Well certainly win if if we're just going to start go up. And cheap financing and no longer available for companies that -- we are seeing that happening in the the -- long markets we are impressed at Lowe's bravery lax lending standards and and also. Covenant terms. And Al bared -- moving the other way. And if firms can't roll over the debt. They will likely see some trouble is very hard for firms -- fault if they have access -- -- financing and I think we're going to see that's likely to taper off. So how -- the worry is that we know that default rates had been low before now so. You mentioned that we're just normalizing. It is it just something that we look at as. Going back to normal -- we look at this as hey this is a problem that people aren't getting that credit thing. Yeah we've we've talked to a number of our members about this and I think it's more normalizing. I don't think gave reference all the numbers I thought this might be some of them bearish turn in the feedback we've got -- that's really not the case we -- unprecedented lows default would very very low levels. Now think we'll probably start to get back to something more typical. And what is more typical. Well I think that typical would be. -- before. This this whole Central Bank. Liquidity pumping policy started. I think. We're likely to. See increase but not down greatly increased default rates and I think we'll see likely similar results. Spreads as well. Yeah I was gonna go to next in terms of what we're seeing on yields where we're gonna go next and high yield of particulars spin out focused and yes. Let me I think that's obviously the most sensitive area and what we've seen in the survey is that Quentin -- it's at prediction that high yield. Spreads including in the leveraged loan market will likely look a bit wider. But that investment -- looks probably. Fairly priced we don't expect a lot change in the and I think that's the actual effect. What if that has announced that they -- back and gas. Rates -- too slowly go up first from two of the impacted on news is burns and that's you what sort of differences are we seeing regionally. They are definitely regional differences. The US now finally looks the best. Definitely much more stress in Europe. And also sort -- -- some stresses in Asia and Australia as well which is a big change from just a year ago. And how severe those stresses. I'm -- it's hard to save me from the survey resulted things have edged up but not -- not been blown out proportion. But. -- did governor -- and India you know things ahead of the kind of wrap up and that's been difficult. Asia is I think. A different story you know looking -- the way the economy is evolving and trying to. I think. Is. Some greater. Fear. Moving towards some kind of tipping point not immediately but certainly at some point in the future. Some. -- Rhonda schaffler is priced.