OREANDA-NEWS. Credit investors scaled back their expectations for economic growth in the U.S. according to the latest Fitch Ratings/Fixed Income Forum survey. This extends the declining sentiment trend that commenced in February 2014. While 84% believe the growth rate will be 2%-3%, nobody anticipates a higher pace. This contrasts with more optimistic views on the labour market, while home price expectations remain in the stable/modest increase territory.

The less bullish view on the economy may be partly explained by investors being less optimistic on the impact of cheaper oil. As survey respondents' expectations for the oil price have fallen, their views on the impact on the wider economy have deteriorated. In this survey, those expecting a net negative impact on the global economy outnumbered those with a positive view by 2.2 to 1, reversing the opinion expressed in our Spring survey. The effect on capex has also been reassessed in a more negative light, with those seeing low oil prices having a negative impact on corporate investment outnumbering the optimists by 6 times.

In this environment, survey participants expect corporates to face challenges. Investment-grade corporates are the most favoured marginal investment choice with 31% of votes, but expectations for credit fundamentals remain firmly negative. Two-thirds of respondents expect worsening conditions overall, up from just under half in April. The most bearish views relate to the energy and basic materials sectors. Respondents remain convinced that corporate leverage will rise.

Within the corporate universe, high-yield issuers will be at the sharp end. A large majority (86%) of survey participants believe high-yield corporates will face deteriorating fundamental credit conditions. This was a rise from 78% in our April survey and by far the most negative view since at least 2012. A rising share of respondents expect a 3% default rate or higher - 61% of respondents, up from 45% in our last survey.

The Fitch Ratings/Fixed Income Forum December investor survey addresses investors' views on the significant risk factors facing the U.S. credit markets, the factors for ensuring a sustained U.S. economic recovery, as well as the general economy.