According to a customer survey conducted by Bank of AmericaKonamiarcadeclassicsSince the Fed hinted that it is unlikely to raise interest ratesKonamiarcadeclassicsSince setting the stage for interest rate cuts later this year, demand for longer-term Treasuries has soared.
A measure of investors' willingness to extend the duration of their portfolios has climbed to an one-year high, close to the highest level since BofA began the survey in 2011. Investors usually avoid long-term periods during periods of monetary policy uncertainty.
The changes suggest that after the hawkish stance expressed by Jerome Powell last week was lower than some feared, market participants were more willing to bet that the Fed would cut interest rates later this year. Weak US jobs data reinforced this view, as bond traders expected to cut interest rates for the first time.
Bank of America's survey, conducted May 3-8 after the Fed's decision, showed that 49% of respondents said long interest rate products were the most confident trades of the year. That's up from 30% in April. A separate report by the bank earlier showed that inflows into global bond funds this week hit a more than three-year high.
BofA strategists such as Ralf Preusser pointed out in the survey report that by setting the threshold for further interest rate increases at a very high level, Powell "triggered the buying mentality of bargain hunting".
However, the survey also shows that customers' positions have not yet reflected their latest ideas. The difference between sentiment indicators and actual long exposure in the US has widened to its largest ever, according to BofA.
Investors are also bullish on bonds from other regions, a global measure of confidence that has reached its highest level since 2021. The European Central Bank and the Bank of England have hinted that interest rates could be cut as soon as next month.
BofA's customers' bearish view on the yen also reached its highest level since 2022, after a long-term bullish view. The yen fell to a 30-year low against the dollar last month, sparking suspected intervention by Japanese authorities to support the exchange rate.
"there are deep doubts about the effectiveness of Japan's foreign exchange intervention," strategists said. According to the survey, most respondents expect the yen to retest 160 to the dollar, and no one expects it to rebound to 150 to the dollar.