Fund managers are giving up on bonds in a way they haven’t in 20 years

Fund managers are giving up on bonds in a way they haven’t in 20 years

Fund-manager allocations to bonds dropped by the most in more than 20 years as they become more optimistic about growth while becoming less convinced the Fed will succeed in fighting inflations, a monthly survey published Tuesday showed.

Bank of America’s April poll of fund managers found a 20-percentage-point drop in bond allocations, to take them to the most underweight since November 2022.

Only 38% expect yields to be lower in 12 months, the lowest since Oct. 2022, with 41% saying higher inflation is the top tail risk in markets. A net 11% expect a stronger economy in 12 months, a switch from the net 12% that expected a weaker one just one month ago.

That’s because investors had the biggest allocation to stocks since Jan. 2022, and the biggest three-month drop in cash since Dec. 2020. There also was a record jump in allocation to commodities.

As these traders became more enthusiastic about commodities, they bought materials, energy and industrial stocks.

The survey is consistent with the price action in markets which has seen the S&P 500 up 22% over the last 52 weeks and gold reaching records, while the yield on the 10-year Treasury has climbed 77 basis points in 2024 alone. Yields move in the opposite direction to prices.

The publication is a closely watched gauge of what professional investors are doing, and it’s used — even by Bank of America itself — to come up with ideas for contrarian investors.

Bank of America says contrarian ideas stemming from the survey include going long bonds vs. short stocks, long cash vs. short commodities, long China vs. short Japan, and long staples vs. short industrials.