Bank of America says US Treasury bonds are on track for a record year of inflows

Bank of America says US Treasury bonds are on track for a record year of inflows

(Bloomberg) — U.S. Treasurys are on track for a record year of inflows as investors chase some of the highest returns in months in liquidity and bonds, according to strategists at Bank of America Corp.

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Cash funds attracted $20.5 billion and investors pumped $6.9 billion into bonds in the week ending Aug. 9, strategists led by Michael Hartnett wrote in a note, citing data from EPFR Global. Meanwhile, US stocks posted their first outflow in three weeks at $1.6 billion.

Bank of America said flows on Treasury bonds reached $127 billion this year, setting an annual record of $206 billion.

The booming demand shows how attractive fixed income markets remain even as the bond rally and economic slowdown that many predicted last year failed to materialize. The yield on the 10-year US Treasury note traded at around 4.09% on Friday, up from a low of around 3.25% in April, and near the 15-year high it touched last year.

“The 10-year benchmark is revisiting the top of the range, providing an opportunity for bond investors focused on long-term value,” Stephen Major, global head of fixed income research at HSBC Plc, said in a separate note.

Investors are also flocking to money market funds to take advantage of higher rates as the Federal Reserve continues to raise borrowing costs. The total value of money market funds has risen to an all-time high.

The Fed began one of the most ferocious tightening cycles in decades last year, causing bondholders to suffer some of the biggest losses on record. Meanwhile, stock markets have been strong amid resilient corporate earnings, although the S&P 500’s rally has stalled over the past two weeks.

Hartnett said the cost of capital, which has risen this year, will not come down without a severe recession, which could in turn affect stocks. The strategist was truly bearish last year, but his negative outlook for stocks in 2023 has yet to materialize.

— with assistance from Michael Msika and Sagarika Jaisinghani.

(Updates with context, chart, and analyst comment.)

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