Bank of America Survey: U.S. Duration Overweights At Above 2008 Highs

Bank of America’s latest survey notes that “investors continue to engage in a broad-based asset allocation rotation. Global duration overweights continue to rise, led by the U.S. The long-term trend in the move suggests this is a reflection of the growing conviction that the global rate cycle will be turning, leading DM sovereigns to outperform. Banking issues seem to be less of a concern than a month ago, and U.S. Tsys are the preferred X-date hedge at the margin. Interestingly, the fact that U.S. duration longs are more pronounced than in 2008, suggests that investors find it easier to identify value in duration hedges even as systemic concerns are less pronounced.”

• “This also squares with our analysis of CFTC positioning. Directional positioning of speculative investors is not accurately captured by leveraged fund futures positioning, especially when basis trading activity is elevated. After removing leveraged investors from the non-commercial set, futures data corroborates the positioning seen in our survey of internationally benchmarked real money investors. The investor community is long rates.”
• “Interestingly, the debt ceiling is not expected to have a major impact on the Fed's reaction function. The fact that it was a toss-up between equity puts and duration longs for favourite X-date hedges, suggests that the main impact on rates markets is perceived to come from a negative reaction in risk assets, rather than a broader change in the macro back-drop or the Fed reaction function.”