By Matt Tracy
(Reuters) - U.S. corporate bond investors were focusing on companies deemed best able to withstand an economic downturn, according to a November survey by Bank of America which found 59% of those surveyed listing a potential mild recession as their top concern, up from 56% in its prior survey.
Some 31% of survey participants saw a soft landing: slower but positive growth and lower inflation which translated to a relatively benign outlook for the U.S. economy in 2024.
The next greatest concern was geopolitical risk in the Middle East followed by the risk of more defaults in commercial real estate debt.
Corporate bond investors are more selective with their funds, as their cash levels declined in November from September, according to the BofA survey.
Investors decreased their positioning in longer-dated debt between September and October, according to the BofA survey. Investment-grade investors shifted to debt maturing between five and 10 years, while high-yield investors positioned more into debt maturing in one to three years.
More the half of investment-grade investors expect bonds rated BBB to deliver the highest risk-adjusted returns over the next 12 months, followed by A or higher and BB.
Some 41% of junk bond investors (compared to 24% in September) expect those rated BB to outperform, followed by B and BBB.
The combination of attractive yields and recession concerns has made investment-grade bonds a popular choice for junk bond investors. The share of junk bond investors that allocate money to investment-grade has reached 47% in November – the highest reading in the survey's history going back to 2018.
Both high-grade and junk bond investors were underweight debt issued by companies in the industrial and telecom sectors at the time of the survey. They were overweight for issuers in the energy sector.
BofA conducted the survey between Nov. 6 and Nov. 9, receiving responses from 91 investors including money managers, insurers, hedge funds, pension funds and banks.