Bank of America Merrill Lynch (BAML) conducts monthly surveys of managers of investment funds, asking, in particular, on the most extreme scenarios, which, in the opinion of the managers, threatened global financial stability. In the October survey of Global Fund Manager Survey (have), which was attended by 213 representatives of management companies, who commands $563 billion, a variant of the “collapse of the bond market / increase of credit spreads” as the largest extreme risk (tail risk) has allocated 18% is second among all risks. While a month ago this scenario was not even among the nine largest risks for investors.
The biggest risk, from the point of view of Fund managers, continues to be the risk of collapse of the European Union (after Brexit) — it was called the most dangerous extreme scenario 20% of the respondents. The risk of winning Donald trump in the presidential election in the United States dropped to third place (17% of respondents in the previous month was 22%). Four risky scenarios also included the acceleration of inflation in the United States.
Among the new fears of investors, the survey recorded BAML — default of European banks and the tapering of the quantitative easing policy in Europe and Japan. Compared to September significantly (from 15 to less than 5%) decreased the number of those investors who called the largest risk of the devaluation of the yuan in China.
In the summer of 2016 from a number of banks and reputable analysts pointed to potential risks in connection with the global decline in bond yields to historic lows. In June, American financier bill gross called bonds with low yield “of a supernova, which will soon explode”, and the Bank JP Morgan has indicated that bonds with negative yields in fact rose on a par with such commodities as oil and gold, in the sense that the principle of trade in such bonds has been significantly simplified — you just need to find an investor who will buy the paper even more.
BAML pointed out the fact that its customers are increasingly concerned about “irrational exuberance” in the bond market, although they are not ready to give them up yet.
In June, Goldman Sachs estimated that in case of increase of yield on Treasury obligations of the United States is 1 percentage point loss of investors can reach about $1 trillion. In early October, the Manager of the largest hedge Fund in the world Bridgewater ray Dalio warned that “enough increase the yield of Treasury bonds is only 1 PP that has led to the largest drop in bond prices since 1981, and since prices for these securities have an impact on all asset prices and they also will go down hard”.
In recent weeks, the volume traded on the bond market with a negative yield is reduced. According to estimates by Bloomberg, since the beginning of September it was reduced by 13% ($10.4 trillion) in October, compression is the “universe” of bonds with a negative yield may be the strongest since December 2015. According to Bloomberg Barclays Global Aggregate Index, bond prices fell for two weeks, 2.3% — the worst decline in the last 19 months.