U.S. Fitch Fundamentals Index Indicates Credit Improvement Plateau

The U.S. Fitch Fundamentals Index (FFI) fell slightly in 1Q'15 but remains in neutral territory, as the rate of credit improvement continues to diminish in some sectors.

'Six years after the start of the economic recovery, the rate of improvement in credit quality is slowing in some asset classes,' said Bill Warlick, Fitch Ratings Senior Director 'While turning up only very slightly, U.S. prime credit card delinquency rates have risen for two consecutive quarters and the rate of improvement for RMBS delinquencies continued to slow in 1Q.'

Investors continued to push credit spreads lower against a backdrop of rising interest rate risk and generally weak global economic growth fundamentals.

U.S. CDS spreads tightened modestly in 1Q, reaching a new post-crisis low at just over 100bp. This represents a decline of greater than 80%, or more than 500bp, from when spreads spiked back in late 2008. The FFI CDS outlook score remained unchanged at 0 in the quarter, but the underlying data trend highlights credit investors' continuing reach for yield, even as the Fed moves closer to raising short-term interest rates.

The FFI has remained neutral for several quarters, in line with the general growth path of the U.S. economy. The 1Q FFI results point to a continuation of this trend, with few signs of dramatic shifts in credit conditions across the economy.