BofAML: ¿Brexit? ¿Qué Brexit? (Encuesta de inversores en bonos)

Redacción - Domingo, 23 de Octubre

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Credit Investor Survey: Brexit, what Brexit?
•   October's survey shows a big jump in longs and decline in cash balances.
•   As a QE response, high-grade investors prefer to buy US credit, high-yield investors prefer to buy European BBs.
•   There are few concerns about Brexit, likely due to Carney's impressive corporate bond buying.

Draghi's game plan in play

October's survey shows that investors have increased their overweight in credit. We think this reflects a combination of lower cash levels due to primary buying (and note new issue premiums have risen in Sep/Oct), investors buying "eligible" sectors (telecoms, utilities) post the back-up in bund yields, and investors extending duration to mimic the ECB (see chart 1 overleaf). Yet, longs in corporate hybrids have also jumped, suggesting that investors are reallocating to higher yielding "non eligible" sectors. The loser of late has been banks, where sentiment has suffered due to litigation and NPL headlines. Bank tier 1/AT1 positions have now been pushed to an underweight.

Deflation concerns rising

In terms of concerns, high-grade investors remain preoccupied by the same two market themes: "Bubbles in Credit" and "Quantitative Failure". However, signs are emerging that investors are starting to give up on expecting monetary policy to deliver the inflation goods: those concerned about deflation/disinflation have doubled (albeit from 3% to 6%) while those concerned about rising yields have declined (from 9% to 6%). High-yield investors, however, seem to have been frightened more by the recent tapering news (and possibly the Brexit-induced volatility in UK names). Those concerned about "market liquidity evaporating" have jumped from zero in August to 21% currently. 

What will the ECB buy next?

Most investors do not expect the ECB to extend QE into other asset classes. Yet, a quarter of high-yield investors expect the ECB to eventually buy senior bank debt, while 11% think that the ECB will buy European equities next. High-grade investors are slightly more skeptical of additional purchases. Nonetheless, 16% expect senior bank bonds to make it in, while 11% expect the ECB to move more formally into BBs. 

Where is everyone crowding into?

QE's aim is to make investors take greater risk in their portfolios. Our survey shows that half of investors surveyed are not materially changing their investment strategies - in part because their mandates restrict them. But for those that have the flexibility to widen their reach, high-grade investors seem keener to buy US credit (18%), rather than AT1s (13%) or BBs (13%). High-yield investors seem much more reluctant to buy US bonds (5%) but appear more at ease buying BBs (30%), simply for the QE "optionality".

Brexit, what Brexit?

Surprisingly, only 3% of high-grade investors say Brexit is their main concern at present. And not a single high-yield respondent has it as their primary concern (despite 25% of the Crossover index being made up of UK credits). Carney's corporate bond buying is providing a lot of relief, given that the BoE have purchased a significant £500m of bonds for the last two weeks running. But at this run-rate, note that the Corporate Bond Purchase Scheme will hit £10bn in February next year (chart 2). As big as the CBPS is, we would suggest that Carney is paddling somewhat uphill: retail flows into UK corporate bond funds have starting to buckle, while inflows remain for Euro credit funds.

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