On one hand, credit investors have never had it better with IG credit spread at record tights and junk bond yields sliding to 3 year lows
On the other, and this is linked to the above, they have never been more nervous, and as the latest Bank of America credit investor survey shows, more worried about the Fed in general, and “Quantitative Failure” in particular.
But why, if as so many claim, the Fed has nothing to do with the the return of risk assets? Ignore that, it’s rhetorical.
As BofA’s Barnaby Martin writes, August’s survey shows a marked change in the Wall of Worry, in which “Quantitative Failure” has now emerged as investors’ top concern (23%), up materially from June’s reading (6%). The reason for the sudden spike in central bank fears is that Investors say that a backdrop of the ECB ending QE next year, while inflation remains sub-par, has the potential to rattle the market’s confidence.
The chart above shows that at the top of the Wall of Worry for both high grade and high yield investors are:
- “Quantitative Failure”, “bubbles in credit” and “rising yields”
- Interestingly, almost no investor worries now about “populism” or “low liquidity”
- Bubbles in credit still features among the top worries, but is well down from June’s reading (in high-grade it has fallen from 33% to 21%)
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