Bond Bulls On Stampede In BofA Fund Manager Survey

Fund managers are more confident than ever that longer-term bond yields are headed lower.

That was the headline takeaway from the November edition of BofA’s closely-watched Global Fund Manger survey, released on Tuesday.

61% saw lower bond yields in the poll, which was conducted from November 3 through November 9.

Recall that from November 1 through November 8, 10- and 30-year US yields fell 40bps on the heels of Treasury’s refunding announcement (which showed smaller-than-expected coupon increases) and amid a raft of soft data.

Wall Street’s year-ahead forecasts for bond yields vary. Goldman, for example, expects 10-year US yields to remain at or above 4.50% through 2027. Morgan Stanley sees the US benchmark yielding 3.95% at year-end 2024.

The BofA survey also showed the largest bond OW since the financial crisis.

The bank’s Michael Hartnett juxtaposed respondents’ bullish outlook for the long-end with the 43% who said fiscal policy is “too stimulative.” That was the largest share ever outside of November 2021, the peak of the pandemic “everything rally.”

Needless to say, not everyone believes bonds are a slam dunk. The refunding announcement plainly suggested Treasury is reluctant to push the supply envelope much further, and idiosyncratic events aside, last week’s poor long bond sale will likely make Janet Yellen even more cautious in that regard. You could argue that’s good news for bond bulls, but the very fact that we’re having the supply discussion speaks to the notion that large issuance at a time when the buyer base is undergoing a transformation defined by more participation from price-sensitive investor cohorts is a risky proposition.

Further, many argue the macro regime has shifted for good, and that we’ve entered an era of permanently larger deficits, sticky inflation, de-globalization and so on. That’s all bond bearish. The same crowd insists the “peace dividend” is no more.

(As a quick aside, I have a hard time countenancing key tenets of the “peace dividend” narrative and I’m equally skeptical of the way we tend to describe The Great Moderation. If you don’t remember a long “peace” during which resources that might’ve otherwise been squandered on “defense” instead went towards facilitating better and more equitable domestic economic outcomes, but instead recall The Great Moderation as a period defined by a series of multi-trillion-dollar foreign wars, the steady erosion of relations with Russia beginning with the onset of Vladimir Putin’s assassination campaign against dissidents sheltering in the UK and ever worsening inequality and deteriorating sociopolitical outcomes for everyday people in the US, congratulations: You live in the real world.)

As for monetary policy, BofA FMS panelists overwhelmingly say the Fed is done. 76% said the hiking cycle is over, and 80% expect lower short rates, the most since November of 2008. A mere 6% see higher US inflation in 2024.

The share who said rate hikes are over was up markedly from 60% in October and was the highest since BofA started asking the question in May.

Consistent with respondents’ overtly bullish view on duration, FMS investors expect bonds to be the best-performing asset class in 2024.

Hartnett noted that 94% expect bonds, stocks and commodities to outperform cash next year.