Worst Bond Selling Since 1949, Collapsing Investor Sentiment – Bank of America

Worst Bond Selling Since 1949, Collapsing Investor Sentiment – Bank of America

LONDON (Reuters) – Bank of America Global Research said in a note on Friday that global government bond losses were on track for the worst year since 1949 and that investor sentiment had fallen to its lowest level since the financial crisis.

The bank said this year’s dramatic bond collapse threatens credit events and potential liquidation of the world’s busiest trade, including bets on the dollar that have pushed the dollar to multi-year highs against other currencies and bets on US technology stocks.

Bond funds posted $6.9 billion in outflows during the week ending Wednesday, Bank of America said in a research note, citing EPFR data, while $7.8 billion was removed from equity funds and investors invested $30.3 billion in cash.

The note said investor sentiment was the worst since the 2008 global financial meltdown.

It looks like US markets are ready for another volatile day. Wall Street futures fell on Friday as investors worried about the possibility of an economic slowdown and corporate earnings hit by the US Federal Reserve’s tougher policy to stifle inflation. It’s down about 5% this month and is close to its mid-June lows in a bear market.

Treasury yields, which move inversely to bond prices, are up again after hitting their highest level since 2011 on Thursday, with a record US 10-year yield recently around 3.76%.

BofA wrote that the bond crash “threatens to liquidate () the world’s busiest trade” including the long dollar and long technology in the US.

Bank of America said investors faced more inflation, interest rates and recession shocks, adding that the bond collapse meant that a rise in credit spreads and a decline in stocks were not reached.

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Strict interest rate increases from major central banks to contain inflation, even as growth slows, have worried global markets and led to a fresh spike in bond yields this week.

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