The popularity of bonds is at the level of financial crisis among professional investors as they prepare to slow growth and reduce interest rates from central banks.
The net 43% of market professionals see lower short-term interest rates over the next 12 months, compared to just the net 9% who saw higher long-term interest rates, according to a study by Bank of America Merrill Lynch's management fund in August.
Taken together, this is the highest fixed income forecast since November 2008, as lower yields mean higher prices and higher equity prices for bondholders.
"Investors have been bullish about interest rates since 2008, as the trade war puts the risk of recession at an 8-year high," says Michael Hartnett, chief investment strategist.
"With a stimulus to global politics of at least 2.5 years, pressure is on the Fed, the ECB and PBoC to restore animal spirits," he added, citing the US Federal Reserve, the European Central Bank and the National Bank of China. [1
All this popularity comes even though 32% of the fund's managers have identified the US Treasury's stake as the most populous trade on the market. This was followed by US technology stocks (19%), growth stocks (15%) and investment grade corporate bonds (12%).
Trade Warfare Concerns
Bonds have come out in times of economic stress, while investors appear to be in the position of comparative security for government fixed income. A recession is likely over the next 12 months, according to 34% of respondents, the highest level since October 2011
. Government bond yields are at multi-year lows, and the spread between 2- and 10-year notes was only 6 basis points on Tuesday morning; an inversion of both is considered a classic recession signal.
The biggest concern is the trade war, cited by 51% of the respondents. The next monetary policy impotence was 15%, followed by a slowdown in China and a bond market bubble, both by 9%. A record net 50% say they are concerned about leverage, with 33% citing corporate bonds as the most likely bubble, followed by sovereign bonds (30%), US stocks (26%) and gold (8%).
This year, investors are investing in fixed income funds. Space-focused global mutual funds and ETFs have raised $ 281.9 billion this year, or 3% of total assets, according to BofAML data released last week. Global stocks fell out of favor, with managers reducing their exposure by 22 percent to a net overweight of 12 percent. For the year to date, mutual funds had $ 177.4 billion in outflows, or 1.2% of total assets.
At the ETF level, the iShares 7-10 Year Treasury Fund has watched the largest flows so far, with $ 5.9 billion in creativity, according to FactSet. Total fixed income ETFs took $ 83.9 billion this year, compared to $ 44.6 billion in inflows.