Merrill's Credit analyst report on CRASH risk
BofAML's credit strategist Barnaby Martin has published a report seeking to identify parts of the market most prone to a crash. Of the 5 key areas discussed which suggests risk is complacently priced, the search for high yield stands out. “Investors are positioned heavily in high yield, high dividend yield and high PE strategies (chart 1). The quest for high yield (relentless multi-year inflows to dividend funds, MLPs, REITS & HY bonds - $415bn inflows since Mar’09) remains the biggest Achilles’ Heel for positioning, in our view.” It is also interesting to note the continued strong performance of the S&P500 on the back of falling equity flows chart 2. Martin says the months ahead offer a "lose-lose" proposition for risk assets. "Either the macro improves and the Fed gets to hike, which will at least temporarily cause volatility; or more ominously for consensus positioning, the macro does not recover, in which case EPS downgrades drag risk-assets lower." Access the article here: (VIEW LINK)
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