The "storm" in global bond markets is over, with the price of 30-year US Treasury bonds falling by 50 per cent from its peak three years ago to its trough. Bank of America Global Research said in a report on Friday (Oct. 6) that the rout in the fixed income market is creating the "largest bond bear market ever."
Bank of America in its weekly & quot; Fund flow report quot; Bond funds saw outflows of $2.5 billion in the week ending Wednesday, according to EPFR, a research firm.
The yield on the 30-year Treasury bond rose above 5 per cent on Wednesday for the first time since 2007, up 15 basis points from the previous week, as investors fled fixed income.
Bank of America's report shows that from the July 2020 peak to the present, the 30-year bond's current losses far exceed any previous bear market, and this one is on track to be its "biggest bear market ever."
However, not all of the bond market has taken the same beating as the 30-year bond.
Treasury bills saw inflows of $4.6 billion in the week ended Wednesday, the 34th straight week of inflows, the report showed. Two-year yields fell 9 basis points over that period as investors piled into shorter-dated Treasuries.
"There is no capitulation here," wrote a team of strategists at Bank of America led by Michael Hartnett.
In addition, the report showed that equity funds saw inflows of $3.3 billion in the latest week, bringing year-to-date net inflows to $110 billion, as money flowing into ETFs outpaced withdrawals from long-only products.
However, BofA's bull and bear gauge fell to a five-month low of 2.6 as money flowed out of emerging markets, high-yield bonds and developed market equities.
Strategists like Mr. Hartnett said they remain bearish on risk assets because higher long-term interest rates would lead to a hard landing, and U.S. stocks could have a lot of room to fall.