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Bull Run in Bonds Means Analysts Are Running Out of Trade Ideas

Bank of America Merrill Lynch investment strategists were "down to one" strategy in global credit: long U.S. investment grade.

By Tracy Alloway

(Bloomberg) --Years of record-breaking new issuance combined with risk premiums that continue to narrow amid a seemingly insatiable appetite for credit, have resulted in what can only be described as a case of “sell-side block” for investment strategists at Bank of America Merrill Lynch.

In a note published on Wednesday, the team said it was “down to one” strategy in global credit: “just long U.S. investment grade.” The bank closed out a recommendation to buy exposure to junk-rated European company debt while shorting the region’s investment-grade bonds through two of the credit indexes in the Markit iTraxx family.

Despite some wobbles in August that saw risk premiums on corporate bonds rise modestly, “U.S. investment grade spreads are back within touching distance of the tights achieved at the end of July,” according to the analysts. Meanwhile, BofAML’s head of U.S. High-Grade Credit Strategy, Hans Mikkelsen, reckons “spreads can still tighten into year end.”

“We have said for a while that we were running out of ideas in credit,” the strategists wrote.

To contact the reporter on this story: Tracy Alloway in Abu Dhabi at [email protected] To contact the editors responsible for this story: Samuel Potter at [email protected] Cormac Mullen, Jeremy Herron

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