Mantra “Don’t Fight the Fed” Turns Corporate Investors into Bulls

By Rom Badilla, CFA

October 19, 2012

In response to the Federal Reserve’s initiative to improve financial conditions and lower borrowing costs via Quantitative Easing, corporate bond investors have turned bullish.

Based off of JP Morgan’s monthly Credit Investor Survey, corporate bond managers have turned more bullish. Of all the corporate investors surveyed, 43% are positive on investment grade spreads.  Given that only 14% were bullish on spreads in September which is near the historical low, this is quite a turnaround. In addition, the October data is above the one year average of 37% for credit investors in the bullish camp.

As a result of this sentiment, investors have over-weighted their corporate bond holdings relative to their benchmarks. The number of investors who are overweight stands at 26% in October, up from 12% in September. 64% of investors are neutral, which is a decrease by 13% from the previous reported period.

Conversely, only 24% are negative on spreads and believe that they will widen relative to U.S. Treasuries, down from 49% in September. The one year average of stands at 30% for those with a negative outlook on corporate bond spreads.

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