Investors poured billions of dollars into high-flying stocks even as the ongoing bond market rout led to sharp losses on Wall Street and kicked off a “new era of volatility”, BofA said on Friday.
Hovering close to 1.6%, U.S. 10-year Treasury yields have risen close to 45 basis points in the last one month, triggering a selloff in equities, which lost $4 trillion in market value since the mid-February peak.
The investment bank, analysing flows on the back of EPFR data, said equity funds saw $22.2 billion inflows, driven by $2.3 billion into tech and $2 billion into financials in the week to Wednesday.
The bond market slump is yet prompt a major change in positioning among investors, with a record 62.6% of BofA’s clients invested in stocks.
A $29 trillion monetary and fiscal stimulus has led to “addictive” Wall Street-Fed dependency culture, Michael Hartnett, the bank’s chief investment strategist said in the note to clients. Markets will now likely push the Fed via higher yields into a yield curve control policy announcement, he added.
U.S. Federal Reserve Chair Jerome Powell’s messaging on Thursday disappointed Wall Street as investors had built expectations that he would act on the wild yield spike in U.S. 10-year Treasuries.
“We think the Fed will inevitably move to YCC,” Hartnett said, adding that the U.S. dollar may rise ahead of YCC but such an announcement would likely trigger the start of great bear market in greenback.