Bond investors back financials despite fears over refinancing

A survey from Fitch Ratings has revealed investment grade financials are fixed income investors’ most favoured sector despite fears over European banks’ ability to meet their refinancing needs.

Commenting on the Fitch Ratings quarterly fixed income investor survey, Monica Insoll, managing director in Fitch's Credit Market Research group said: ‘More than one third of investors ranked investment grade financials as facing the greatest refinancing challenge over the next 12 months.'

Survey participants also pointed to funding access as being the main risk to banks' credit quality, ahead of other factors such as the macro economy and the withdrawal of stimulus and quantitative easing programmes.

Despite this, the survey revealed that investment grade financials had moved to the top slot for most favoured sector, with 21% of investors picking the asset class, on a par with high yield and ahead of emerging market corporates (14%).

The survey closed on 23 July, just before the news of EU bank stress tests was released, but James Longsdon, managing director in Fitch's Financial Institutions team is positive on what the results mean for European banks’ refinancing needs.

‘The major European banks that "passed" the tests with ease should now be better placed to continue with their re-financing programmes following the dramatic contraction in public debt issuance in May,’ he said.

The survey generated responses from 85 participants from European asset management houses, representing mostly traditional asset and wealth managers, large pension funds and insurance companies.