BofA: 92% Of Investors Are Expecting A Great Summer, And 'No One Is Worried' About Rising Rates

The BofA Merrill Lynch rates and currencies team conducts a survey of market views from 72 global fixed income fund managers every month.

The latest survey results are out, and BofA clients sound decidedly optimistic about this summer:

“Sell in May and go away” not a theme for this market: Only 8% of investors believe that we are at risk of seeing markets repeat the pattern of 2012 and 2011 with significant risk-off episodes in the summer following data weakness in the spring (see Chart 1). Consequently investors expect to maintain risk positions or add risk exposure in May.

BofA client survey question on investment flow patterns

Last week, BAML Head of Global Rates and Currencies Research David Woo gave some more colour on this specific topic based on conversations with clients:

Clients who believe we pay too much attention to weak data have laid out three reasons why we are wrong.

One, data points to slow growth ahead but there are no signs yet for a very sharp slowdown (“bad news is not bad enough“).

Two, weak data means the Fed will be on hold for longer (“bad news is good news“).

Three, the impact of US fiscal tightening is ultimately transitory and when it starts to fade, the US economy will roar (“good news will follow bad news“).

One risk investors definitely do not have on their radar, according to the survey, is an untimely rise in bond yields, a scenario BofA strategists Ralf Preusser and Richard Cochinos describe as “the biggest risk to carry trades globally”:

No-one is worried about a back-up in rates: The risk the market may be most complacent about is a sharp back-up in yields (as seen on Friday), with only 8% of investors seeing USTs close Q2 above 2.00%. Such a back-up in yields seems to pose the largest risk to carry trades in fixed income at the moment.

BofA client survey question on the outlook for Treasury yields

When posed with the “sell in May and go away” question, 59% of investors said that in May, they would “maintain risk broadly unchanged,” 14% said they would “increase risk positions,” 14% said they “don’t know” what they will do, and 13% said they would “reduce risk globally.”

The survey was conducted between May 3 and May 8.

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