LONDON (Reuters) – Investors have poured money into beaten-down, long-dated U.S. Treasuries and bruised tech stocks in recent days, BofA Global Research said in a note on Friday.
There were $5.6 billion of inflows to long-duration Treasury funds in the week to Wednesday, the largest on record, while inflows to short-term Treasuries slowed, according to the report, which cited EPFR data.
“The biggest flow story right now is money gravitating to extend duration in Treasuries,” BofA said.
The data indicates that fund managers, who expect bonds to bounce back when the long-awaited recession arrives, have kept buying, even as prices have dropped, which has pushed up yields.
Long-dated Treasuries have been selling off very heavily in recent months, and the 10-year U.S. Treasury yield – which moves inversely to its price – reached a 16-year high of 5.021% this week.
Analysts point to a range of factors that have weighed on Treasury prices. These include an increase in supply of government debt to fund deficits, reinforced by the Federal Reserve winding down its bloated balance sheet, and growing uncertainty, which means investors demand higher yields to hold long duration bonds – the so called term premium.
BofA said the bond bubble has now “popped” but expects prices to move sideways.
Tech funds also saw inflows of $2.0 billion in the week to Wednesday, their largest in eight weeks, which BofA attributed to investors “buying-the-dip”, given the sector’s recent declines.
Equities as a whole saw $2.1 billion in outflows, but energy funds saw inflows of $2.4 billion, the most in 18 months.
Higher oil prices following the outbreak of war in the Middle East have boosted energy stocks.
(Reporting by Alun John; Editing by Amanda Cooper and Mike Harrison)