Global equity fund managers are bearish on long-term interest rates and the bond market but also pessimistic about overall economic prospects a "dichotomy of views that puts them between a rock and a hard place, said David Bowers, chief investment strategist at Merrill Lynch.
According to Merrill Lynchs March fund manager survey, issued today, 55% of the more than 300 fund managers surveyed think bond yields will be higher a year from now. Also, almost two-thirds of those surveyed said global bond markets are overvalued, according to Mr. Bowers. Only 4% think there is any value left in bonds, while only 12% think bonds will do better than equities over the next 12 months.
"What we find really intriguing is how negative investors are toward bonds, and yet in the same breath, they are so convinced that we are living in an unusually low nominal growth environment, according to Mr. Bowers. More than half the managers surveyed think stocks are undervalued, and almost 30% think equities are undervalued by at least 15%, according to the report. Because of this, the possibility exists for a "significant tactical equity market rally, Mr. Bowers said.