Investors Bullish on Bonds in Wake of Financial Crisis
In recent months, professional investors have shown unprecedented bullishness on bonds, with investment fund managers surveyed by Bank of America reporting the most overweight position on bonds since early 2009, the depths of the Great Financial Crisis. According to Bank of America’s Chart of the Day, the surge in bullishness is primarily driven by an extended period of elevated interest rates.
The aggressive rate hikes from the Federal Reserve have led to bond yields rising to levels not seen in over 15 years, resulting in significant losses in the fixed-income space. However, with expectations rising that the Fed is done hiking rates, investors see an opportunity for bond prices to appreciate once more.
Bank of America’s Michael Hartnett stated, “The big change in the November Fund Manager Survey was not the macro outlook, but rather the conviction in lower inflation, rates, and yields.” As long as inflation continues to fall and yields trickle lower, bonds are expected to perform well.
These positive sentiments towards bonds have also had a spillover effect on stocks, with investors increasing their equity allocation from a 4% net underweight in October to a 2% net overweight in November. This shift in sentiment is attributed to a more stable macro outlook and a much more optimistic view on rates, signaling a positive trend for both bonds and stocks.
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