ANCHOR (OFF-CAMERA) ENGLISH SAYING:

Bond fund managers have become a whole lot more optimistic according to the International Association of Credit Portfolio Managers. Executive Director Som-lok Leung joins us with more on the latest survey. Welcome, Som-lok. Thank you. Why the improving data? What's behind it?

SOM-LOK LEUNG, EXEC. DIR., INTL. ASSN. OF CREDIT PORTFOLIO MGRS., (ENGLISH) SAYING:

Well, I think a lot has happened in the last quarter, primarily the removal of uncertainty in a couple of different sectors. Certainly, the passing- the fiscal cliff is one aspect of things certainly in the US. And in Europe, the European situation looks much more stable. Not that things are fixed or over, but the fact that recent bond auctions from Spain, Italy, Ireland have all gone well with lower yields. Now those are all signs that things are stabilizing.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

Right, certainly down from the historic highs in terms of yields. You mentioned the fiscal cliff, but we're beyond that now. On the other hand, a lot of investors in the markets are worried about the other things plaguing the US - the debt ceiling for one, sequestration another. How big of a concern is that for your members?

SOM-LOK LEUNG, EXEC. DIR., INTL. ASSN. OF CREDIT PORTFOLIO MGRS., (ENGLISH) SAYING:

Well, I think they should be worried. But I think what's happened in terms of the survey is that before, all sequestration, fiscal cliff and the debt ceiling were all out there, now at least one of those things is off the table at least in the near term. The two worries remain out there and that's why I think you don't see unbridled optimism in terms of the outlook. Things certainly look improved. They're more positive than they've been in a long time, but so far from when things were looking rosy.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

Certainly, in terms of improvement, certainly you see a lot of improvement in Europe in terms of the credit spreads there. On the other hand, your default index for Europe, it is still negative and deeply negative at that at about nearly -44.

SOM-LOK LEUNG, EXEC. DIR., INTL. ASSN. OF CREDIT PORTFOLIO MGRS., (ENGLISH) SAYING:

Right, right. Well, I think what we see- it's tough to interpret because spreads are composed of a number of things. There's an underlying risk component of a spread, that's where the default risk comes from. But there's all these other stuff as well such as liquidity issues, the overall appetite for risk or risk premia. All these things are embedded in spreads. And I think a lot of those things have come in a bit with the removal of uncertainty. But the underlying default risk especially in Europe still exists. I mean, unemployment is still very, very high. A lot of the underlying core economic problems in a number of countries have not yet been fully fixed.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

And overall, Europe aside, the default outlook did improve, but then again even that isn't a deep negative number at -35.

SOM-LOK LEUNG, EXEC. DIR., INTL. ASSN. OF CREDIT PORTFOLIO MGRS., (ENGLISH) SAYING:

It's still negative, yes. I mean, improving but still negative. And that's why this is a kind of a nuance interpretation of what these results mean. Things are getting better but it is not time for unbridled optimism. We're not out of the woods. There's still problems that the economies of the world need to fix.

ANCHOR (OFF-CAMERA) ENGLISH SAYING:

And, Som-lok, we've seen a real crowded trade in terms of high yield bonds for example. Everyone chasing after yield. What's the outlook for high yield versus investment grade?

SOM-LOK LEUNG, EXEC. DIR., INTL. ASSN. OF CREDIT PORTFOLIO MGRS., (ENGLISH) SAYING:

A lot of this stuff in high yield and leveraged loans and all the related markets, to me, seem a little bit irrational. And a lot of it has to do with the amount of money that needs to earn something out there, chasing what's out there. I think those are more driven by the technical aspects of where the money has been put rather than the underlying risk characteristics of that market.