Asset allocators sell down credit holdings ahead of 'bond catastrophe'

Fears ahead of end of quantitative easing

Beth Brearley
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Managers warn quantitative tightening could see "large swathes" of BBB-rated bonds tumble into the high yield index
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Managers warn quantitative tightening could see "large swathes" of BBB-rated bonds tumble into the high yield index

Asset allocators have warned pitfalls as a result of quantitative tightening (QT) are lurking in bond markets, which have the potential to cause a "bond catastrophe" forcing investors to reduce their credit holdings.

Cautioning investors, Man GLG's Craig Veysey, lead fund manager of the group's Strategic Bond fund, said QT could see "large swathes" of BBB-rated bonds tumble into the high yield index, while chief strategist at 7IM Terence Moll, said the bond market "masks a lot of danger". Furthermore, Veysey explained QT will amplifiy volatility, worsen fundamentals and trigger credit downgrades. As such, BBB-rated corporate bonds could lose their investment grade status.  He pointed out the percentage of triple B-rated bonds has "exploded" since 2008 as companies have geared up their balance shee...

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