Policy uncertainty was recently been at the highest levels we have ever seen. However spreads have remained relatively tight and volatility was close to record low levels. The cash bond market is still trading in a tight range in the past couple of months and implied vols across a wide range of asset classes up to recently were close to the lows.

According to Bank of America Merrill Lynch, lower front-end rates have been pivotal to support flows into credit to the detriment of flows into equities. Investors continue to favour short-duration IG paper, while outflows continue from high duration pockets.

According to BofA Merrill Lynch Global Research report Euro credit is currently 85% correlated by moves in OAT spreads now and French elections matter a lot for credit as there is Eur 410bn of French IG debt outstanding. So far French IG credits have widened 6bp since early Jan. But Italian credits widened over 35bp around the referendum...

According to BofA Merrill Lynch Global Research, Inflows continued across IG short-dated and HY funds in Europe. Investors are adding yield shifting away from duration risk. Last week's flows >>> HG: +$920mn / HY: +$287mn / Equities: +$73mn

Macro optimism is surging, with 23% of investors saying they expect a “boom” (above trend growth and inflation) compared to 1% one year ago. Meanwhile, 43% said they expect “secular stagnation” (below trend growth and inflation), down sharply from 88% one year ago...