Crash in bond markets, Fed mistake are investors’ biggest fears right now, survey finds

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Fed Chair Janet Yellen testifies before a Senate Banking, Housing and Urban Affairs Committee.

“Fund managers’ biggest fears are a shock coming from bond markets or central banks,” said Michael Hartnett, chief investment strategist. “Too many investors see the Fed as a likely negative catalyst.”

One potential trigger could be the Fed reducing its balance sheet, the survey pointed.

“Although 48 percent of investors see it as a non-event, a notable minority, 31 percent, thought any decrease would be risk-off pushing bond yields higher and equities lower.”

Bond yields saw a major sell-off in the last few weeks as investors started to worry if the hawkish tones coming out of central banks would mean a risk to the global economy. Coutts, the wealth managing arm of the Royal Bank of Scotland, in its mid-year outlook said that despite the reflationary environment, bond yields remain very low.

“This suggests low returns – and the possibility of losing money if yields rise – for long-term investors. In the shorter term, the reflationary environment characterized by rising inflation and rising nominal rates is likely to be negative for bonds, particularly those that are interest rate sensitive,” according to Coutts.