Sharp Jump in Investor Recession Fears: Survey

An economic alarm bell has sounded, sending recession anxiety through the investor community.

How much anxiety? According to a Bank of America/Merrill Lynch survey, fully 25% of US credit investors expect a global recession to strike within the next 12 months.

Bank of America says these are the highest recession fears it has ever recorded and that the number of investors worried about an economic downturn has grown by 5% since last month’s survey.

Investors are not alone in worrying about the economy. An August National Association for Business Economics survey of 226 economists found that 72% anticipate a recession by the end of 2021.

The BofA survey concludes that recession is a major concern among credit investors, ranking just behind trade matters and the escalating trade war with China.

Survey respondents indicated that they are responding to market instability by shifting attention away from the BBB-rated low end of the debt market in favor of investment-grade and high-yield markets. Experts say the rapid growth of BBB-rated offerings is another sign of an economic slowdown.

"In fairly dramatic fashion, high-grade investor sentiment on BBBs has soured to the point where only 33% expect outperformance on a risk-adjusted basis, down from 58% in July," the survey reports.

Many experts have been sending warning signals as this issue swells in size, but without success.

Bank of America/Merrill Lynch analysts describe high-yield cash levels as “off the charts.” Surveyed investors report a surge in cash levels, up 35% since July and the highest since April 2011.

Survey respondents remain optimistic about the US China trade war - fully 87% say they expect a trade deal eventually. Other worries among credit investors include asset bubbles and currency wars.