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Investors are more bullish on bonds that at any time since November 2008, with net 43% expecting lower short-term rates and only net 9% expecting higher long-term ones over the next 12 months, according to Bank of America Merrill Lynch's August global fund manager survey.
Thirty-four percent of investors said they expected a recession in the next 12 months, while 64% did not think one was likely.
This marked the highest recession probability since October 2011, Merrill noted, and was in line with the firm's U.S. economists, who think there is close to a one in three chance of a recession in the next 12 months.
"Investors are the most bullish on rates since 2008 as trade war concerns send recession risk to an eight-year high," Merrill's chief investment strategist Michael Hartnett said in a statement. "With global policy stimuli at a 2.5-year low, the onus is on the Fed, ECB and [People's Bank of China] to restore animal spirits."
Concerns about a trade war dominated the August survey's list of tail risks, cited by 51% of investors. Fifteen percent worried about monetary policy impotence and 9% each about a China slowdown and a bond market bubble.
The survey was conducted Aug. 2 to 8 among 224 panelists with $553 billion in assets under management.
Net 25% of investors surveyed said fiscal policy was too restrictive, and just net 11% said monetary policy was too stimulative; combined, this was the most hawkish policy mix since November 2016, the report said.
Merrill pointed out that 12 months ago, 90% of fund managers expected higher short-term and 64% expected higher long-term rates.
The survey found that record net 50% of investors worried about corporate leverage. Forty-six percent said they wanted corporates to use cash flow to improve their balance sheets; 36% preferred to see corporates increase capital expenditure and 13% said corporates should return cash to shareholders via dividends or buybacks.
Thirty-three percent of respondents said that corporate bonds were the asset class most vulnerable to a classic investment bubble, given current central bank policy trends, followed by 30% who said this of government bonds, 26% of U.S. equities and 8% of gold.
