Ever the contrarian, we were somewhat taken aback by the overwhelming majority of respondents to JPMorgan's fixed income manager survey who expect LSAPs in 2012. With 80% expecting QE3, a majority expecting to add to Agency MBS (and high yield and investment grade credit), it seems the Fed's bang for buck from actually enacting the balance sheet expansion will be significantly lower than it hopes. Maybe third time is the charm but it seems evident from discussions that traders have become numb to this manipulation - even if it does have short-term portfolio rotation impacts - but the difference between managers who expect to reduce EUR assets and those that expect to increase USD assets suggests everyone and their cat is waiting to jump in.
The diversification/currency trade seems popular as local denominated EM assets are among the classes managers expect to add the most to but duration risk seems very evenly split as the great majority expect 10Y to hold the 1.5% to 2.5% range.
It also seems they are more positive on the European endgame (despite a view to reduce EUR assets) as two-thirds do NOT expect Greece to leave the Euro next year and 75% do not expect any other country to leave by 2013.
It seems the lack of belief in any significant fiscal stimulus is being discounted by the strong belief that the Fed will ride to the rescue once again.