Credit market fearful of global recession

The risk of a global recession has surged to the top of the worry list for credit investors even as they push down their cash balances to snap up new-year issuance, according to Bank of America Merrill Lynch’s latest survey of European money managers. Almost 30% of respondents to the bank’s poll cited a worldwide economic slump as their largest concern, the strongest consensus for any single risk since June 2017. No one cited rising bond yields or higher inflation as their top worry, while only 2% said it was Brexit.

European investors have been piling into credit so far this year, adding corporate hybrids, insurance and subordinated bank debt alongside defensive positions in utilities, according to BAML. That’s pushed cash allocations down to 3.5% and left a majority of investment-grade money managers feeling that spreads are too tight. Investors are also sceptical that another round of cheap central bank funding for European lenders from the ECB will provide much of a boost — they believe the policy has been so well signalled that it’s now priced in. Even so, almost a quarter of respondents expect tighter senior bank spreads as a result.

Recommended Posts