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J.P.Morgan: Large Cash Holdings Should Limit Bond & Equity Losses From Here

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J.P.Morgan write “following this year’s unprecedented rise in bond yields, we find that non-bank investors globally have erased 14 years of previous bond overweights and lowered their allocation to bonds to only 17% currently, even below the pre-Lehman crisis average of 18%.”

  • “We see two main implications from this low bond allocation. First, going forward a sustained bull market in equities could require a bull market in bonds. Second, the pressure on multi asset investors to sell equities to offset the mechanical increase in their equity allocations stemming from bond price declines has diminished.”
  • “Outside any interplay between equity and bond allocations, a backdrop of high cash allocations provides in our opinion a backstop to both equities and bonds, likely limiting any further downside from here.”
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J.P.Morgan write “following this year’s unprecedented rise in bond yields, we find that non-bank investors globally have erased 14 years of previous bond overweights and lowered their allocation to bonds to only 17% currently, even below the pre-Lehman crisis average of 18%.”

  • “We see two main implications from this low bond allocation. First, going forward a sustained bull market in equities could require a bull market in bonds. Second, the pressure on multi asset investors to sell equities to offset the mechanical increase in their equity allocations stemming from bond price declines has diminished.”
  • “Outside any interplay between equity and bond allocations, a backdrop of high cash allocations provides in our opinion a backstop to both equities and bonds, likely limiting any further downside from here.”