The US 10-year Treasury yield would need to climb to nearly 6% before bonds become compelling enough for investors to draw money away from stocks, highlighting the resilience of equity markets even as borrowing costs jump, Bank of America’s latest Global Fund Manager survey found.
The survey, carried out between October 2 to 8, found investors were the least optimistic since the June poll, but were still bullish on macro and markets heading towards the US midterm elections and third quarter earnings season, BofA said in a note on Tuesday.
Key findings from the October survey in more detail:
* Investors turned negative on the global growth outlook with a net 4% expecting the economy to get weaker over the next 12 months. Inflation expectations have fallen to their lowest since January 2025.
* Pessimism on bond yields at lowest since May 2025, net 1% now expect higher long-term rates, down from 15% in September.
* Biggest tail risk to markets is a disorderly rise in bond yields, then AI bubble.
* Long global semiconductors remains the most crowded trade, followed by short US Treasuries.
* AI hyperscaler capex continues to be viewed as the most likely source of a systemic credit event.
* Investors most overweight on technology since August 2020, biggest underweight on consumer discretionary since July 2008.
* Biggest monthly drop in allocations to banks since March 2023.
* Investors increased allocation to bonds, Japanese and UK stocks and utilities in October.
* Investors reduced allocation to banks, US stocks and consumer discretionary.
* 76% of investors expect the Federal Reserve to keep the Fed funds rate on hold in October.
(Reporting by Samuel Indyk; editing by Dhara Ranasinghe)