Bank of America: Investors are getting worried that a bond market crash is coming

Across asset classes, investors are worried the most about a bond-market crash, according to a survey of fund managers around the world conducted by Bank of America Merrill Lynch.

They think that bond prices are frothy, showing signs of being in a bubble - meaning that prices are much higher than what bonds are actually worth.

Bond prices rose and pushed yields lower as investor demand grew and central banks, in Europe for example, bought bonds to lift inflation and fire up their economies.

But at the same time, many investors expect that the yield curve will steepen. That's a situation where either long-term bond yields are rising faster than short-term bond yields, or short-term yields are falling faster than long-term yields. It typically reflects the expectation f0r higher inflation and stronger growth.

The share of fund managers that expect the yield curve to steepen was at the highest level since June 2014 in this survey. On Tuesday, Treasury yields neared their highest levels since June.

Fund managers think that bond yields will be the biggest driver of stock prices over the next six months, according to the survey.

Meanwhile, investors prefer to hold cash over bonds. Their cash levels jumped to 5.8% from 5.5% - the highest since the British referendum in June and since September 11, 2001.

According to the survey, the biggest concerns on investors' minds right now are a breakup of the European Union, a bond market crash, and a Republican winning the US presidential election.

The chart below shows that bond allocation relative to cash is at the lowest level since July 2016 as investors opt for the more liquid asset.