Buying Junk Bonds Is the Top Contrarian Trade for 2024

Worries about an economic downturn aren’t enough to dissuade market participants from being bullish on risky debt as their top contrarian trade, according to the latest Bloomberg Markets Live Pulse survey.

Despite heavy outflows in 2023 and countless warnings about the health of heavily indebted companies, 52% of 506 respondents see opportunities in high-yield bonds, while remaining more cautious on some of this year’s laggards including regional bank debt and commercial real estate loans.

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The results are a sign of trust in the balance sheets of corporate America, even as the Federal Reserve looks to squeeze growth to rein in inflation. Technical catalysts may be another reason otherwise cautious investors still see opportunities in junk bonds. The global high-yield market has shrunk more than 20% since its 2021 peak to $1.94 trillion, according to Bloomberg data. Less supply has already helped fuel a gain of more than 6% in the asset class this year.

“There’s actually been outflows for high yield, but the universe has shrunk more at the same time,” said Matt Brill, head of North America investment-grade credit at Invesco Ltd. “If you can get inflows — which should happen as the Fed pauses and yields stabilize — combined with a shrinking universe, it’s a very good combination.”

More than three quarters of survey respondents still expect the US to slip into recession, and a majority say buying bonds remains the best way to counter stock volatility.

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