Credit score traders have gone “all in”, judging that the extraordinary market-supporting measures of central banks are too highly effective to struggle towards, based on a survey by Bank of America.The funding bank, which surveyed 51 fund managers throughout the UK and continental Europe, discovered that record-low rates of interest and huge asset-buying programmes put in place to restrict the financial harm from the Covid-19 pandemic have inspired many to load up on company bonds. The web share of traders who’re chubby top-rated bonds — a measure of what number of are making constructive long-term bets, minus these making destructive bets — reached 62 per cent, the best on file. Barnaby Martin, head of European credit score technique at Bank of America, stated demand for company bonds is exceptionally excessive due to the “liquidity backstop that central banks have put in place.” “[Investors] feel that central banks have their back, that central banks will be accommodative and keep doing what they’re doing for a very long time,” he added.On the top of the Covid-induced market panic earlier this 12 months, central banks led by the Federal Reserve and European Central Bank introduced sovereign and company bond-buying programmes that shored up credit score markets. Almost 60 per cent of respondents to the BofA survey anticipate the ECB to proceed its assist for a few years. Final month, Fed chairman Jay Powell stated: “We’re in this until we’re well through it,” signalling the central bank’s willingness to increase its financial assist measures, which embody shopping for exchange traded funds that spend money on company bonds in addition to shopping for debt straight from firms.In an surroundings of low or destructive rates of interest, traders have pumped file sums into company debt markets as they seek for earnings. This shopping for has pushed yields on European investment-grade company debt right down to 0.56 per cent from 1.81 per cent firstly of April, based on an ICE BofA index.“We certainly feel more constructive on the asset class when the Fed and other central banks have got their arms around [us],” said Colin Reedie, co-head of global fixed income at Legal and General Investment Management. “It’s a safety net.”Mr Reedie added that the extent of financial assist raises questions in regards to the extent to which markets are actually free “when you’ve got this level of interference”. Low rates of interest and authorities assist measures have allowed “zombie companies” to maintain going, he stated, alluding to struggling companies stored alive by traditionally low borrowing prices.Almost half of traders surveyed by BofA stated defaults amongst European firms are being suppressed by assist measures. Buyers seem satisfied, stated Mr Martin, that central banks “aren’t tiptoeing towards the exit yet”. However the true ache, he added, is more likely to be felt as firms are weaned off some assist measures, such because the UK’s job retention scheme, later this 12 months.
