BofA: Shift Away From Fund Dependence

Bank of America write “history suggests that lower rates and steeper curves correspond with smaller overweights and slower fund inflows. We are seeing some signs of this in our latest FX and Rates Sentiment Survey and investment fund buying at auction off its recent peak. Demand from other investors though should continue to improve, including from foreign investors, pensions, and banks. This should mark a pivot from last year where fund inflows and the basis trade dominated the demand backdrop.”

• “Our futures positioning proxy is relatively neutral but shows a small bias for the curve to steepen, with the front end modestly prone to rally and back end to selloff. Open interest has grown more notably at the back end vs front end and has a larger concentration of out of the money longs.”