The market’s safest assets have become the world’s most crowded trade — and it shows just how worried everyone is about the trade war

  • Government bonds are the top crowded trade for global fund managers, according to a survey conducted by Bank of America Merrill Lynch.
  • Fears over trade tensions have driven investors to havens like Treasurys, which are viewed among the safest assets in the global marketplace.
  • The long US Treasury trade beat out long US tech, which was previously the top crowded trade.
  • The firm heard from 179 participants with $US528 billion under management.
  • Read more on the Markets Insider homepage.

Nervousness around trade has sent investors fleeing to safety.

For the first time ever, being long US Treasurys was the number one most-crowded trade, according to the June global fund manager survey conducted by Bank of America Merrill Lynch.

The bet on government bonds beat out popular crowded trades such as tech, high-quality and emerging markets, each of which has occupied the list’s top spot since 2013.

The study was released Tuesday during a week where traders are watching multiple events that will set the course for global growth going forward: the Federal Reserve meeting Wednesday, and the G20 summit later in the month.

Investors are monitoring the Fed to see if it will indeed cut interest rates – an outcome both the bond and stock markets have priced in currently. They’re also watching for news of progress between China and the US on the subject of trade.

For proof of the market’s desire for constructive trade talks, look no further than the S&P 500’s gain on Tuesday, which brought the index within 1% of a record high. The surge came after President Donald Trump tweeted that he spoke with Chinese President Xi Jinping, saying the two will have “extensive” discussions at the G20 summit.

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Escalating tension around trade has been a main driver of both equities and bonds, and has led to a bearish sentiment among money managers. More than half of the fund managers surveyed said that trade is the biggest tail risk for markets, and many rotated into so-called safe haven assets such as bonds, cash, staples and utilities to whether a potential storm. Trade has been named a top fear for fund managers on 14 out of the past 16 surveys.

Trade tensions also spurred the recent rally in 10-year Treasury notes, pushing yields lower, near 2%. The yield curve between the 10-year and 3-month bond has been inverted for some time, which some say is a sign that recession is looming.

The survey showed that asset allocation of fund managers implies “recessionary conditions,” as equities posted their second-largest monthly drop. The spread between allocations in stocks versus bonds fell to 1%, the tightest since May 2009.

It seems that fund managers are growing exceedingly cautious as they see the global economy slowing down – 87% say the global economy is late cycle, the highest reading ever.

A total of 179 fund managers with a combined $US528 billion assets under management participated in the survey, which took place from June 7 to June 13.