Barnaby Martin is out with the results of BofAML’s latest credit investor survey and as usual, there are some notables.
For one thing, no one thinks stocks can fall. And indeed, why should they? As we noted on Tuesday in “2 Remarkable S&P Stats,” the S&P is about to set a record for most consecutive calendar months with a positive total return and also a record for most consecutive months overall with a positive total return. And that’s against Deutsche Bank’s data going back 90 years.
Well as Martin notes on Wednesday, “so far this year, the S&P’s maximum continuous sell-off (continuous daily declines) has been less than 2%” which, if it holds up through the end of the year, would mean that 2017 would have seen “the smallest such loss for the S&P for almost 100yrs (Bloomberg data starts at 1928).”
For credit investors, that translates directly into only 5% of clients saying they’re concerned about a correction (0% for high yield investors):
As you can also see from those charts, investors are increasingly sanguine about traditional macro risks. “Note, with the exception of geopolitics, how little investors now worry about traditional macro themes,” Martin writes, adding that in addition to the meager percentage of clients who care about equity markets, “rising yields is a top concern for only 5% [as] clients say that the debt ‘super cycle’ will make it hard for central banks to properly raise rates.”
The flip side of that is that clients are worried about factors that do not qualify as traditional macro risks – factors like, central banks and the distortions they’re causing. Here’s Martin:
October’s survey highlights the extremes to which credit markets are currently wrestling with the backdrop of central bank liquidity. The big concern remains Quantitative Failure – the idea that markets could fret next year because so much QE has delivered so little inflation. And yet a similar proportion fear the opposite – that the persistence of central bank looseness will simply drive credit bubbles down the line.
In short: one way or another, central banks are perceived to be the biggest risk factor for credit investors and it’s not hard to understand why, especially when you think about how jittery folks are about the prospect of the ECB potentially screwing up while trying to unwind CSPP.
Finally, have a look at one last chart which shows the evolution of the biggest risk for Euro high-grade credit investors:
In short: “Bubbles, bubbles, every where, Nor any one to pop.”