2023-11-13 20:23:59
Investors in U.S. corporate bonds are focusing on companies deemed best able to withstand an economic downturn, according to a November survey by Bank of America. 59% of respondents said a possible mild recession was their main concern, up from 56% in the previous survey.
Some 31% of survey participants envisioned a soft landing, meaning slower but positive growth and lower inflation, resulting in a relatively favorable outlook for the U.S. economy in 2024.
The second most important concern is geopolitical risk in the Middle East, followed by the risk of increased commercial real estate debt defaults.
Corporate bond investors are more selective with their funds as their cash levels declined in November compared to September, according to the BofA survey.
According to the BofA survey, investors reduced their position in longer-term debt between September and October. Investors in investment-grade bonds shifted toward debt securities with maturities between five and ten years, while investors in high-yield bonds shifted more toward debt securities with maturities between between one and three years.
More than half of quality investors expect bonds rated BBB to deliver the highest risk-adjusted returns over the next 12 months, followed by bonds rated A or higher and BB.
Some 41% of junk bond investors (up from 24% in September) expect bonds rated BB to perform better, followed by bonds rated B and BBB.
The combination of attractive yields and recession fears has made investment-grade bonds a popular choice for junk bond investors. The share of junk bond investors allocating money to investment-grade bonds reached 47% in November – the highest figure in the survey’s history dating back to 2018.
At the time of the survey, investors in investment grade and junk bonds were underweight debt issued by companies in the industrial and telecommunications sectors. They were overweight to energy sector issuers.
BofA conducted the survey between November 6 and 9, receiving responses from 91 investors, including fund managers, insurers, hedge funds, pension funds and banks. (Reporting by Matt Tracy; Writing by Andrea Ricci)
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