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Bank of America published its latest credit investor survey on December 18, which showed that the biggest risk investors are braced for in 2020 is market liquidity: only the second time ever that this factor has been uppermost in investors’ minds.
As for credit itself, investors are fully risk on.
“Spreads are tightening fast, and FOMO behaviour has been conspicuous of late (note single-B and CCC spreads are now ripping),” according to analyst Barnaby Martin, head of European credit strategy at Bank of America. “But there are almost no investor concerns next year on inflation, rising yields or an equity market correction.”
Given where the credit markets were at the end of 2018, it is perhaps understandable that bond buyers remain very focused on liquidity, or rather the lack thereof. This is a market where just 1% of bonds trade daily, and 32% of bonds trade on five or fewer days per year.
“In which other asset class do funds managing $3 trillion routinely guarantee daily liquidity to their end investors, whilst regularly taking weeks or even months to turn around their portfolios?” asked Citi’s Matt King in a report in early November.
