Concern that investors will shift into equities from bonds is overblown as issuance and corporate health remained strong in the first quarter, said Mark Bamford, the head of global fixed-income syndicate at Barclays Plc.
“The rumors of our fixed-income market demise are greatly exaggerated,” Bamford, who is based in New York, said today in an interview with Stephanie Ruhle on Bloomberg Television’s “Market Makers.” More than $1 trillion of global issuance this year, while behind 2012’s pace, is “very strong” compared with previous quarters, he said.
Speculation began mounting last year that investors would start a disorderly shift from bonds, causing borrowing costs to soar. Bank of America Corp. strategists called it the biggest risk to investment-grade debt in 2013.
It’s a risk “we are getting increasingly concerned about,” Bank of America’s Hans Mikkelsen in New York said in a Jan. 28 report. “We now consider it most likely that total returns will fall short of our low 1.6 percent target.”
About 90 percent of bond offerings are intended to refinance debt, Bamford said. Borrowers are locking in yields that have fallen to 3.26 percent as of yesterday from 8.21 percent at the end of 2008, Bank of America Merrill Lynch index data show. He expects to see industrial companies lead issuance in the U.S. and globally.
“I see no indication that fundamentals and the things underpinning the strength of the market are going to go away anytime soon,” Bamford said. “It is overall a refinancing trend.”
The so-called great rotation from bonds into stocks was also questioned this month by Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital LP.
“Every share of stock is owned, so for someone who rotates in, someone must sell and move out of stocks,” Gundlach, whose firm manages about $53 billion, said March 5 in a webcast organized by the firm. “Someone has to rotate out.”