“Credit investors continue to feel very uneasy about the state of affairs and the growing influence of central banks.” — Bank of America Merrill Lynch credit analyst Barnaby Martin.

Investors are becoming increasingly concerned about the state of the credit markets and influence central banks are having on bond prices and yields according to Bank of America’s monthly Credit Investor Survey.

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BoA’s Credit Investor Survey is based on the responses from a range of the bank’s clients, including pension funds, asset managers, hedge funds and insurance companies. The results of the survey are published as soon as they are received and this month 50 investors participated.

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BoA: Credit investors feel very uneasy

With such a wide variety of respondents, BoA’s credit survey is a great barometer of the industry’s attitude towards the credit markets at any point in time. Last month’s responses indicate the many institutional investors are worried about the state of the credit markets. Specifically, in analysing the findings Barnaby Martin and team write:

“Our survey shows that credit investors continue to feel very uneasy about the state of affairs and the growing influence of central banks. “Bubbles in credit” remains by far the biggest investor concern, trumping all current macro issues. In fact, for high-yield investors, “bubbles” is now highlighted as the biggest risk by close to 50%. Neither does the prominent trend of negative yielding assets appear to help (and note that short-end Gilt yields are close to joining the club too). The worry is that this will lead to a “misallocation of capital”. Again, for high-yield investors, this is a pertinent concern (60%) given the backdrop of a 24.5% default rate in the US HY energy sector.”– Bank of America Merrill Lynch credit analyst Barnaby Martin.

As mentioned above “bubbles in credit” is the biggest concern on high-yield investors’ minds, closely followed is Quantitative Failure is at the second spot and third spot for the investment grade and high-yield survey respectively. This time around there were virtually no investors across both the investment grade and high-yield surveys who are worried about “Brexit” anymore. However, for investment-grade investors “populism” is a new worry with 11% of respondents worried about this developing trend.

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Some of the most interesting responses to the survey concern negative yields.

One of the questions posed by BoA asked investors what the rapid growth of negative yielding assets meant for capital markets. 60% of high-yield investors answered that they believe negative yields will lead to a misallocation of capital. 43% of investment grade respondents held the same view. According to 26% of investment grade investors, negative yielding assets are another way to say “Quantitative Failure” and only 17% of investment grade and 20% of high-yield investors see the rapid growth of negative yielding assets as a bullish signal.

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