In a bullish turn of sentiment, a recent survey conducted by Bank of America reveals that investors are overwhelmingly optimistic about the prospect of a consistent decline in bond yields over the next year. The fund managers survey, a gauge of market sentiment, reveals an astounding 80% of fund managers foresee record-low bond yields in 2024. This marks the highest percentage in the history of the firm, signaling a significant shift in market expectations.
“The big change in the November FMS was not the macro outlook, but rather the conviction in lower inflation, rates, and yields,” remarked Michael Hartnett, strategist and head of BofA’s data analytics team, in a statement on Tuesday. This surge in confidence regarding a downward trajectory in bond yields could have a positive impact on the already buoyant stock markets. The S&P 500, in particular, is currently experiencing its lengthiest winning streak in two years.
Co-Chief Investment Officer at Truist, Keith Lerner, weighed in on this phenomenon last week, attributing the S&P 500’s success to recent declines in bond yields. Although yields have been on a steady incline since August, with the 10-year Treasury yield surging nearly 100 basis points over October, recent weeks have witnessed a reversal in this trend. Yields have taken a downward turn, steadily declining from nearly 5% to an intraday low of 4.4% on Tuesday.
The release of the Fund Managers Survey, coupled with the unveiling of the Consumer Price Index this week, has further fortified market confidence in the anticipation of a decline in bond yields. The CPI reported a slowdown in price increases in October, marking the slowest pace in two years. Additionally, the survey indicated that investors are growing increasingly certain about a rate pause from the Federal Reserve, particularly following October’s tepid jobs report.
This intraday decline represents the most significant move in the bond market since March, a period marked by investor flight to bonds amid a regional banking crisis. The Fund Managers Survey also revealed an overall sense of optimism among investors, with 76% expressing the belief that the Federal Reserve has concluded its hiking cycle. This level of conviction is the highest recorded since the survey was first introduced in May.
Furthermore, the survey highlighted that investors are overweight on equity for the first time since April 2022. Fueled by recent market data and survey findings, investors are displaying unparalleled confidence in the prospect of record-low bond yields in 2024. This heightened assurance underscores a strong belief in the sustained downward trend of bond yields in the coming year. If this trend materializes, it could potentially act as a catalyst for stock markets already navigating challenges posed by fluctuating yields.
Source: Yahoo Finance
