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Investors Dump Cash to Chase Bonds, BofA Survey Shows

(Bloomberg) -- Investors turned the most bullish on bonds since the global financial crisis on “big conviction” that rates will move lower in 2024, according to the latest Bank of America Corp. fund manager survey.

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The monthly survey showed investors were dumping cash to hold the biggest overweight position in bonds since 2009. BofA’s Michael Hartnett said the “big change” was not the macro outlook, but expectations that inflation and yields will move lower in 2024.

Global stocks and bonds have advanced in November after slumping for the past three months amid concerns that interest rates would move higher and stay elevated for an extended period of time, denting the economy further. The Federal Reserve’s latest meeting somewhat eased these worries, allowing assets to rally.

The BofA survey showed the conviction of peak US interest rates is now the strongest since the poll began asking investors to time the end of the rate hiking cycle.

That view got further reinforced after US inflation broadly slowed in October, which markets cheered as a strong indication that the Federal Reserve is done hiking. Swap contracts used to hedge future Fed actions marked down the odds of another rate increase to almost nil, shifted the timing of an anticipated cut to June.

Participants in the survey, who cash levels to 4.7% from 5.5%, also flipped their positioning on equities to overweight for the first time since April 2022. Respondents were the most net overweight on pharmaceuticals, technology and telecommunications stocks while most net underweight on utilities, materials and discretionary.

“Investor playbook for 2024 is soft landing, lower rates” and a weaker dollar, the strategist wrote. The survey saw investors increase allocation to US and Japanese stocks and decrease exposure to euro area and UK equities.

The poll was conducted between Nov. 3 to Nov. 9, spanning 225 participants with $553 billion in assets under management. Other findings include:

  • Two out of three investors see soft landing as their base case scenario for the global economy in 2024

  • The most crowded trades are long big tech, short China equities and long T-bills

  • Investors see US/European Union commercial real estate as the most likely source for a credit event

  • The relative overweight in US and Japan equities versus euro area and UK equities is the largest since Nov. 2008

(Adds market moves after CPI data in the fifth paragraph)

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