Fitch Ratings says that its latest European and US fixed income investor surveys both show continued cautious optimism about prospects for international credit markets this year, however, the majority of investors remain concerned about the outlook for European government debt.

"Responses from senior credit investors across Europe paint a picture of continued improvement in fundamental credit conditions in relation to corporate asset classes, including investment grade, speculative grade and emerging markets. However, in stark contrast, investors have a negative view on sovereign debt fundamentals and funding needs in 2010," says Monica Insoll, Managing Director in Fitch's Credit Market Research group.

The proportion of European investors concerned that sovereign credit fundamentals will deteriorate remained at an elevated 70% - unchanged on the last quarter. In addition, 40% believe that the peak of mark-to-market loss-taking in this sector has yet to occur, and 55% expect sovereign bond spreads to widen. Investors also expect a flood of sovereign issuance to occur in the next 12 months: 24% believe issuance will increase more than a quarter on last year, and 59% anticipate issuance will rise by up to 25%.

Regarding expectations of global macroeconomic growth, US investors continued to hold the most negative views on Europe, with 50% believing that growth this year will fall in a range of 1% to 2%. Their views were most optimistic on emerging markets (with two thirds anticipating a 3%+ growth rate), while they also appeared more optimistic than previously on domestic US growth, with half of the respondents placing growth rate expectations in a healthy range of 2% to 3% in 2010.

Overall, investors were more sanguine about corporate debt fundamentals, especially for cyclical sectors. European investors expressed a clear positive step change in sentiment across this asset class, with the proportion expecting improvements in credit quality broadly doubling on the previous quarter for investment grade and speculative grade - continuing the upward trend observed during the latter part of 2009. In the US, opinion has turned modestly bullish, with the majority of investors expecting credit improvement over the coming year and a renewed focus on growth-oriented activities such as capex and M&A.