Debt investors are becoming more negative on the outlook for corporate credit amid a muted economic recovery, according to a survey by the International Association of Credit Portfolio Managers.

The credit default outlook index, in which negative numbers indicate an expectation of higher defaults and deteriorating credit conditions, dropped to minus 18.6 in the second quarter from minus 14.6 in the prior period, the group said in a statement today. IACPM’s 98 members include banks, insurance companies and asset managers in 17 countries across the U.S., Europe, Asia, Africa and Australia.

“We’re in the good part of the credit cycle and it’s hard to imagine things getting much better,” Som-lok Leung, executive director of the IACPM, said in a telephone interview.

The global speculative-grade default rate fell to 2.2 percent in the second quarter from 2.3 percent in the three months ended in March, according to Moody’s Investors Service. The credit-ratings firm predicts the rate will drop to 2 percent by the end of the year, less than half its historical average.

While money managers expect defaults to climb, they also predict yields on company debt will remain stable relative to benchmark rates, the survey showed. The IACPM credit spread outlook index, where positive numbers indicate credit improvement, was at zero for North American investment-grade debt and 2.3 for high-yield debt.

Extra Yield

The survey was completed before Israel began its Gaza Strip offensive and a Malaysian jet was downed in Ukraine. The extra yield investors demand to hold speculative-grade securities compared with government debt has climbed 42 basis points to 377 basis points from a seven-year low in June, according to the Bank of America Merrill Lynch U.S. High Yield index. A basis point is 0.01 percentage point.

“The most recent numbers in terms of wage growth and employment tend to support the view that even though spreads are as low as they have been and defaults are also low, we’re not going to see them go in the other direction very quickly,” Leung said.

The IACPM credit spread outlook index fell from 25.6 to 15.8 in the three months through June for European investment grade debt. Expectations for European high-yield or junk debt, graded below Baa3 by Moody’s and lower than BBB- at Standard & Poor’s, were steady at 18.4.