J.P.Morgan Look Into The Fall Of Bond Exposure In Wider Portfolios

J.P.Morgan note that their “estimated allocation to bonds by investors globally stands at only 18% currently, the lowest level since 2008. 14 years of previous bond overweights have been erased and investors’ positioning has transitioned to the pre-Lehman crisis norms. The mirror image of this is a very high equity-bond position gap, which currently exceeds the previous post-Lehman period high of 2018 and is approaching the previous cycle highs of 2006-2007. In other words, investors globally appear to be currently very underweight bonds both outright and vs. equities. Historical experience suggests that severe bond fund outflows do not last more than one quarter outside crisis periods. We thus believe this quarter’s rotation away from bond funds into equity funds will subside into the coming quarters, implying less bond fund selling and less equity fund buying in Q2 and beyond. Our analysis suggests that the 90bp rise in the Global Agg bond index yield YtD more than compensates for the expected $1.9tn deterioration in the balance between global bond demand and supply for 2022.”