Corporate bondholders, beware. The wave of enthusiasm for this asset class, which has helped it to reach new heights, is now ebbing. A research paper recently published by the IMF illustrates the reasons behind this – although it must be said the paper does not represent the official position of the IMF.
As investors ponder whether to “sell in May and go away,” strategists say we’ll either see a “summer of stocks,” or a “summer of shocks.”
If anyone was looking for more proof of how central banks’ actions are distorting the markets, here it is: investors are trying to “front-run” the European Central Bank (ECB) – in the words of analysts at Bank of America Merrill Lynch — by buying investment grade bonds.
The European Central Bank helped credit as an asset class, and of course corporate bonds within it, become attractive to investors again.
As the Federal Reserve’s Federal Open Market Committee (FOMC) starts talks on what is probably the most watched interest rate hike in history, the importance of getting it right cannot be over-emphasized.