The proportion of Negative Outlooks and Watches fell in all but two sectors, by between 1pp and 18pp, with international public finance seeing the greatest reduction in the past six months. The corporate and insurance sectors saw only marginal increases. However, the negative rating trend is still stark for the sovereign sector, with more than a quarter of developed market (DM) countries on a Negative rating Outlook.

The greater rating stability is partly a function of negative rating actions since the start of the crisis, causing rating compression.

“In recent years, ratings in many sectors have gravitated towards the ‘BBB’ category, underlining a shift in the investable universe globally as issuers across sectors adjust and manage through an enduring period of relatively weak growth, the benefits and uncertainties of fiscal stimulus, and implications for banking from increased regulation,” says Monica Insoll, Managing Director in Fitch’s Credit Market Research team.

“The proportion of ‘BBB’ ratings has doubled to 27% in the sovereign sector since 2007 and risen by half to 36% in financials. For corporates, where the share of ‘BBB’ ratings has held steady at around 40%, the proportion of ratings above this level has also fallen steadily by almost a third to just below 20%,” Insoll added.

Fitch expects the economic recovery to take hold in 2014, after several false starts in recent years. Global growth should accelerate to 2.9%, driven by more robust activity in major advanced economies. However, emerging market (EM) growth rates will improve only modestly and several risks lie ahead, including the impact of Fed tapering, as well as stubborn unemployment and the risk of deflation in the eurozone.

We believe the wind-down in super-sized monetary stimulus by major central banks will be measured and sensitive. The main risk from market adjustment lies with EMs, as hot money is migrating back to DM currencies as interest rates begin to rise.

Our six-monthly credit outlook report provides an overview of Fitch’s outlook across all rated sectors and regions, identifying the main macro factors that will drive credit trends over the next 12-24 months. It is available at www.fitchratings.com or by clicking the link above.

Additional information is available at fitchratings.com

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