Credit’s Weekly Thoughts

Monday Musings: March 8, 2021

Mar 08, 2021

Public Trust Credit Team

Bank of America March Investor Survey sheds light on investor positioning going into quarter-end

According to a recent survey by Bank of America, investment-grade (IG) investors have built up a near-record cash position through the first two months of the year while their high-yield (HY) counterparts have spent down to a record low cash position. Going further on this split, 73% of IG investors believe spreads are overvalued (tied with the March 2006 record) while only 43% of HY investors feel the market is overvalued.

This split in investor sentiment tells us a few things. Negative net issuance in the IG market is likely to grind spreads tighter; IG investors already see spreads as overvalued, and expectations of light issuance through the rest of the year mean finding value in investment-grade will be challenging. And because HY spreads are near record lows but market participants do not believe the market is overvalued, we believe that projected strong issuance in the HY space may keep spreads wider and value a bit easier to come by. Overall, IG investor sentiment echoes our own market view – with less issuance available, it will be tough to find value in high-grade credit throughout 2021.

All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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