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Professional investors are flocking to bonds in a stampede not seen since the end of the financial crisis, according to the latest Bank of America Global Fund Manager Survey. November’s closely watched polling of Wall Street investors shows that fixed income is expected to be the best-performing asset class in 2024, driven by hopes for a soft economic landing and lower yields as inflation becomes less of a threat. “The big change in the November FMS was not the macro outlook, but rather the conviction in lower inflation, rates, and yields,” Bank of America investment strategist Michael Hartnett wrote in a summary of the results. The move was “evidenced by the 3rd largest overweight in bonds in the last two decades (only in Mar’09 and Dec’08 were investors more overweight bonds).” Markets began a shift in March 2009 following a two-year recession. Stocks and bonds both rallied, with equities enjoying their longest bull run over. The shift to bonds comes amid a calamitous year for the asset class. Yields have spiked to 16-year highs, though they have come off lately as markets shift their outlook on inflation and expect the Federal Reserve is probably done hiking for this cycle. Expectations for a bond reversal dominated the November survey, with a record 61% saying they expect lower yields over the next 12 months. Prices and yields move in opposite direction. A change in Fed policy is expected to accompany the decline in yields, as 76% of respondents said they think the central bank is finished hiking. A report Tuesday showing that month-over-month inflation was flat added to conviction for an end to tightening. Futures pricing pointed to just a 5% chance the Fed would raise at its upcoming two meetings. The “investor playbook for 2024 is soft landing, lower rates, weaker US$, large cap tech and pharma bull continues, avoid China and leverage,” Hartnett said. Amid that backdrop, investors have cut cash positions to 4.7% of portfolios, down 0.6 percentage point from October and below the 5% contrarian “buy” signal from the BofA survey. Portfolio managers do see some danger ahead, though: Geopolitical factors moved into the top position for tail risks for 31% of respondents, with a hard landing for the economy moving up as well.
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