Fear that the market was headed for an economic slump is loosening its grip on corporate debt markets as investors start to put their money back to work, according to Bank of America Corp.
(Bloomberg) — Fear that the market was headed for an economic slump is loosening its grip on corporate debt markets as investors start to put their money back to work, according to Bank of America Corp.
July cash levels fell to the lowest in two years, as the share of investment-grade investors reporting above normal cash levels declined to 26% in July from 35% in May, according to a bank survey. Cash in junk debt also fell, although it remains above historical norms.
“Credit quality expectations are improving among high-yield investors,” wrote Yuri Seliger, a credit strategist at Bank of America, “and a big consensus calls for only a mild US recession and at most two more hikes from the Fed.”
Investors spent much of the year moving capital into safer assets ahead of a much anticipated downturn that has, so far, not materialized. As Wall Street reins in recession expectations, investors are turning optimistic again.
BofA’s survey of over 100 respondents showed concerns about a downturn fell to the lowest since the early stages of the Federal Reserve’s rate hiking cycle last year.
The share of investment grade investors reporting below normal cash increased to 19% in July, up from 15% in May.
“Lower cash can become an issue if there is a panic for the exits so everyone is forced to create liquidity at the same time,” said Noel Hebert, a credit strategist at Bloomberg Intelligence.
In contrast, high yield investors reporting above normal cash increased to 47% in July, up from 45% in May, while the share reporting below normal levels increased to 11% from 5% over the same time frame.
Investment-grade credit positioning remains significantly lower than normal, but reached the highest since May 2022, according to the survey. Net positioning increased to 4% net overweight in July from an unchanged in May. High yield positioning is at the highest underweight on record at 37% net underweight in July, up from 35% in May.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.