GLOBAL – Only 4% of fund managers believe that there is any value left in bonds, according to a survey conducted by Merrill Lynch.

Sixty percent of 303 fund managers surveyed from March 6 to March 13 claimed bond markets to be overvalued, while only 4% believed bonds were undervalued. Only 12% of those questioned thought that bonds would be able to beat equities over the next year.

Yet, at the same time, fund managers are becoming more pessimistic about the global macroeconomic environment and are reducing risk levels in their portfolios.

Most of those surveyed estimated nominal gross domestic product growth in the Group of Seven area at 2% over the next 12 months. David Bowers, Merrill Lynch’s chief global investment strategist, described the contradictory results as “intriguing”.

Investors are negative toward bonds, yet “in the same breath they are so convinced that we are living in an unusually low nominal growth environment”. Generally, not until prospective growth turns up do major bear markets in bonds tend to begin, he explained.

The report adds: “Nominal GDP growth of a mere 2% would be a compelling argument for staying long-bonds and short-equities. That said, in the short term, the odds increasingly favour a tactical rally in equities.”

The factors pointing to a rally are that: More than half of those surveyed believed stocks to be undervalued, and almost 30% believed equities to be undervalued by 15% or more. Forty-five percent of those questioned admit to having a shorter-than-normal investment time horizon; and cash levels have risen to 5.4%.

So, according to Merrill Lynch: “the end of the road of the bond bulls may be in sight”.

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