European fixed income investors expect the eurozone crisis will persist through 2012, according to a survey by Fitch Ratings.
“48% of survey respondents expect the sovereign debt crisis to continue largely as is,” said Monica Insoll, Managing Director in Fitch’s Credit Market Research group. “A quarter of investors are more pessimistic, expecting the situation to worsen, evenly balancing the 24% who think it will get better or be solved.” A very small minority of 3% optimistically anticipate the crisis will be solved during the year.
The investor survey largely accords with Fitch’s view that the eurozone crisis will persist, be punctuated by episodes of severe financial volatility, and not be resolved without a broad-based economic recovery.
Although the ECB’s December LTRO action boosted market confidence in banks, benefits to sovereigns are viewed as more uncertain. 37% of respondents said the ECB liquidity action in December was “the big bazooka”, reducing the risk of eurozone sovereigns facing liquidity crises. However, 54% said there would only be limited take-up by banks for the purpose of buying sovereign debt. 9% of participants even thought the action could worsen the crisis by increasing the sovereign-banking sector links.
Although the LTRO has eased near-term bank and sovereign funding pressures, it is not evident that banks are using it for large-scale purchases of sovereign debt outside their home countries, nor that it has removed the risk of self-fulfilling liquidity and solvency crises.
Fitch’s European Senior Fixed Income Investor Survey Q112 closed on 31 Jan and represents the views of managers of an estimated $7.1trn of fixed income assets.