According to the latest Bank of America Global Fund Manager survey, investors have scaled back expectations on bond yields, following the 100bps rally in long-term rates over the past two months.

The survey found that 55% of respondents expect lower bond yields over the next 12 months, down slightly from a record 62% in December 2023, while expectations for lower short-term rates reached a record-high this month. 

Global investors remain set on Goldilocks soft landing despite bearish stance

Over two-thirds think the Federal Reserve will be the most important driver of bond yields in 2024, well above those who see global growth (15%), US fiscal policy (9%), or the Bank of Japan (5%) as the main drivers.

With only 3% of respondents expecting higher rates, January’s most crowded trade was long-duration tech, with long 30-year Treasury no longer seen as the best way to play a Fed rate-cutting cycle over the next six months.

This follows an improvement in global growth expectations, with the net percentage of investors expecting a stronger economy in the next 12 months rising to a 12-month high.

Bank of America forecasts no rate cuts for UK until 2025 due to ‘entrenched inflation’

The majority (79%) of investors expect the global economy to experience either a “soft” or “no” landing in 2024, a nine-month high.

Conversely, only 17% expect a “hard” landing, a nine-month low, while only 2% stating that a recession is likely in the next 12 months, down from 15% in December.

January’s biggest tail risks were geopolitics worsening (25%), an economic hard landing (24%), higher inflation (21%), a systemic credit event (11%), the US election (11%), a China banking crisis (3%) and an AI bubble (2%).

Overall, investors rotated into REITs, staples, cash, and out of bonds, banks, telecom and the UK.

Contrarian longs included China, Europe, banks, energy, low-quality stocks, all “soft landing” catch-up plays, while contrarian shorts were bonds, US, the Magnificent Seven and vulnerable to “hard” and “no” landing outcomes.