A deep or very deep recession will grip the U.S., Europe and emerging markets over the coming year, and the economic downturn is likely to last one to two years across all regions, according to the most recent Fitch Ratings/Fixed Income Forum Survey of Senior Fixed Income Investors.

The bi-annual survey, designed to provide insight into the opinions of professional money managers on the state of the U.S. credit markets, includes a wide range of questions targeting views on the economy, fundamental credit conditions across various asset classes and sectors, corporate strategies, and other market developments.

In the recent survey, conducted in January, expectations for stability in the housing market were pushed further back, with 57% of respondents not expecting normal conditions to return before 2010. However, most investors believe that credit market stability will return sometime in 2009 (77% expressed this view).

In a notable reversal from the mid 2008 survey, and clearly a consequence of the speed and severity of the economic downturn, the recent survey showed greater receptivity on the part of investors to the expanded role of government in the credit markets.

Banks' reluctance to lend received the most votes as a high risk to the credit markets over the next 12 months and nearly 40% of respondents believe that banks' willingness to lend will not stabilize this year.

Interestingly, the corporate area with the most votes (40%) for some improvement over the coming year was financials. However, 44% of investors also expected improvement among financials in the June 2008 survey. In fact, responses on the outlook for financials continued to be among the most diverse. Views were also notably divided on whether the bigger risk going forward is inflation or deflation.