• Bank of America (BofA) recently reported an increase in bond and cash reserve allocations by investors in fear of a possible recession.
• Fed Chair Jerome Powell has been raising interest rates up to 5% since Q2 2022, prompting Ryan Payne to call the bond market a “dangerous place to be” at the moment.
• BofA referenced 289 fund managers in the survey, with 63% of them still expecting a soft landing despite 65% believing in weaker global growth.
Bank of America’s Bond Allocation Report
Rise In Bond and Cash Reserve Allocations
According to a recent report by Bank of America (BofA), apprehensive investors have been pumping their bond holdings in May, as well as cash reserves, fearful of a possible recession. The May Global Fund Manager Survey revealed managers continue to increase their bond allocations to 14% from 10% the month before. Moreover, the spike constituted a significant growth after bond allocations were as low as 1% in March 2023.
What Are Bonds?
Bonds are debt securities, similar to an IOU (phonetic acronym of the words “I owe you”). Governments, municipalities, or corporations issue bonds to raise funds from investors willing to lend them money for some time. When you buy a bond, you lend to the issuer, collecting interest. Bonds do not represent ownership, and their yield may vary depending on the Federal Reserve’s policy. Notably, Fed Chair Jerome Powell has been raising interest rates up to 5% in 10 consecutive revisions since Q2 2022, with the latest hike in Q1 2023.
The Danger Of Following The Herd
The Fed’s hawkish policy prompted Ryan Payne, President of Payne Capital Management (PCM), to call the bond market a “dangerous place to be” at the moment. In a recent interview with Reuters, Payne commented on the danger of investing into bonds without proper research: “That’s a sign of a bond bubble forming […] [with] big retail money inflow going into [bonds] specifically.”
Managers Expect A Soft Landing Despite Pessimism
The May Global Fund Manager Survey also revealed that majority respondents still expect soft landing despite pessimism regarding global growth: BofA referenced 289 fund managers overseeing $735 billion worth assets – net 65% expect weaker global growth while 63% believe there will be a soft landing following period grow..
In conclusion therefore Bank fo America’s Global Fund Managers Survey reveals that managers continue allocating more towards bonds due its increasing yields though this is met with both optimism and pessimism for what could come next – either way it appears that many are taking precautions now rather than later when it comes down too investing into bonds and other assets!