No wonder trading participants are so concerned with corporate bond liquidity and volatility (the topic of our newsletter two weeks ago)----money manager's allocation to corporate bonds is close to a record at 35.3%. Just last week, $33bn of new investment-grade bonds were issued as companies are pushing to sell new debt before the Federal Reserve is expected to raise interest rates next month.
Increased allocation to corporate bonds by the buy-side stands in contrast to trends in the balance sheets of sell-side big banks. Earlier this week Goldman Sachs analysts highlighted new Federal Reserve data that showed banks' inventories of some corporate debt had turned negative. In other words, banks now have a net short position, or bets that prices will fall, on corporate bonds worth about $1.4 billion. That’s down from a net positive of $13 billion as recently as May, according to data compiled by Bloomberg.