Combine the enduring search for yield with a renewed bull market in Treasuries and what do you get? Record high U.S. corporate debt holdings.
Stone & McCarthy Research Associates’ weekly survey of fixed-income portfolio managers showed corporate debt allocations at an all-time high of 37%, matching levels last seen in August 2016.
Money managers’ holdings of corporate bonds as a share of assets has oscillated between 32% and 37% over the past five years.
Survey participants also reported reducing their allocation to Treasuries ahead of this week’s Federal Reserve meeting to 24.2%, their lowest levels since September, while also cutting back on duration.
Bank of America Merrill Lynch recently highlighted a near $10-billion flood into investment grade debt during the week ended June 8, positing that the fierce appetite for corporate credit helps explain the broader disconnect between Treasury yields and risk assets.
However, this buying behavior also could reflect underlying imbalances and mismatches between portfolio managers’ desired holdings and what’s available to purchase.