Mom-and-Pop Bond Demand Widens Global Supply Gap, JPMorgan Says

Bond bears beware: there could be even less debt to go around this year, keeping prices high.

“The supply-demand picture for 2015 continues to look supportive for bonds globally,” wrote a team of JPMorgan & Co. strategists led by Nikolaos Panigirtzoglou in London.

The difference between the amount of new global bonds being offered and investor demand for those bonds could rise to $450 billion this year, up from $384 billion in 2014, according to JPMorgan’s projections.

The gap will widen even though international central banks, a big source of demand, have slowed their buying, which JPMorgan attributes to a stronger dollar and smaller purchases from China. While their latest forecast constitutes a cut from their forecast for a $600 billion gap earlier this year, the strategists see individual investors stepping in to bolster demand.

“The 2015 global bond demand/supply picture is not materially changed,” the strategists wrote. “This is because of stronger-than-expected bond fund demand by retail investors.”

Mom-and-pop investors aren’t just picking up more bonds to protect against market tumult or save cash, they’re also buying to keep their portfolios diversified after the years-long rally in stocks, JPMorgan says. The strategists think that individuals will buy $350 billion of bonds this year, up from their previous forecast of $280 billion.

A mismatch between supply and demand gave bond prices a boost after the financial crisis, when the Federal Reserve carried out a series of bond-buying programs. The Fed has wound down its purchases, but global central banks in Europe and Asia have stepped in, with the European Central Bank rolling out its own bond-purchase program earlier this year.

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