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investors trust central banks on qe exit

The Fitch Ratings European Senior Fixed-Income Investor Survey for the third quarter of 2013, conducted in July, found that more than two-thirds of respondents viewed the withdrawal of quantitative easing as a high risk event for European credit markets – up sharply from just 19% in the second quarter.

However, an even greater proportion – almost three-quarters – said central banks would reduce stimulus in a “timely and smooth” manner, following the shock to financial markets caused by Federal Reserve chairman Ben Bernanke’s comments on “tapering” US quantitative easing.

Just 9% feared policy would be tightened too quickly, thereby risking volatility in financial markets, while 18% expected stimulus to be withdrawn too slowly, raising the threat of inflation and asset bubbles – a danger Fitch says it sees evidence of in the highly-leveraged corporate loan market.

Other key findings of the survey:

  • Most investors expect fears over QE exit plans to drive emerging market bond flows for the rest of 2013, and almost two-thirds anticipate worsening credit conditions for EM corporates;
  • Just 28% of investors are confident that the eurozone banking union will reduce default risk for banks in the single currency bloc; and
  • Sentiment towards banks has generally improved, with more respondents overweight financials than any other corporate fixed income sector.

A copy of the survey can be downloaded from the Fitch website, here (registration required).

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