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A record 25% of US credit investors surveyed by Bank of America Merrill Lynch said they see a recession hitting in the next 12 months.

Recession risk jumped to the third-highest overall concern for credit investors surveyed, trailing only the trade war and China.

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US credit investors are more worried than ever that a recession will strike in the next 12 months.

A Bank of America Merrill Lynch survey of US credit investors found that the perceived probability of a recession in the next year spiked to 25%, its highest reading. It exceeded the record reached in July 2016 and marked an increase of 5 percentage points from last month's survey.

BAML's survey found that recession risk is now the third-biggest concern for credit investors over geopolitical risk, just behind trade and China.

Bank of America Merrill Lynch

Investors across the board have grown increasingly worried that a recession is on the horizon. A survey last month found that more than 70% of economists think a recession will hit the US by the end of 2021, the Federal Reserve has signaled further rate cuts, and the inverted yield curve has flashed multiple warning signs about the state of the economy.

In the credit markets, investors are generally seeking higher-rated debt in the investment-grade and high-yield markets, BAML found. This means shunning the BBB-rated part of the debt market, which sits one step above junk status. Experts have been increasingly sounding the alarm on the group as it swells in size.

"In fairly dramatic fashion, high-grade investor sentiment on BBBs has soured to the point where only 33% expect outperformance on a risk-adjusted basis, down from 58% in July," the team wrote.

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This could be a reflection on valuations, the team wrote, as high-grade investors move up and down in quality in sectors that are likely to outperform.

In addition, high-yield cash levels are "off the charts," the strategists wrote. More than half of high-yield investors reported having above-normal cash levels, up from 35% in July and marking the highest reading since April 2011.

The top risks weighing on investors surveyed remained the trade war and China — 76% of investors said they expect a trade deal but not anytime soon, while 14% said they expect trade-war escalation. The fear of asset bubbles and a currency war also ticked up slightly in the latest survey.

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