A majority of corporate bond investors are expecting implied volatility to increase and investment-grade and high-yield spreads to widen in the second half of the year, according to the results of a quarterly Morgan Stanley
investor poll. More than 81% of the responding firms in the survey expect the VIX, which measures implied volatility of companies in the Standard & Poors
500 Index, to range between 15 and 22 through the rest of the year. It currently trades at 15.7; high-yield and the VIX have traditionally been highly correlated. Fifty-six percent of the polled investors also expect spreads to widen by the end of the year.
In fact, the investors may be prescient: low volatility started to pick up in the middle of last week in response to earnings reports and an increase in volatility lies ahead, said Gregory Peters
, executive director and head of credit strategy at Morgan Stanley in New York.
More than 110 firms are represented in the poll, with 55% of those in investment-grade, 15% in high-yield and the remaining respondents responsible for multi-asset portfolios. Of the other results, 32% cited terrorism and geopolitical concerns as the biggest risk to the credit markets today, while 12% said rising rates are the most significant risk.