BofA: Investors pour into bonds, pull back from crypto
By Investing.com Staff
BofA Securities strategist Michael Hartnett is calling the current bond crash the "3rd Great Bond Bear Market", with the first being 1899-1920, and the second being 1946-1981. He said it is a "doozy" thus far. The strategist said 2022 global govt bond losses are on course for "worse since 1949 (Marshall Plan), 1931 (Credit-Anstalt), 1920 (Treaty of Versailles)."
He said the bond crash threatens credit events and liquidation of the world's most crowded trades: long US$, long US tech, long private equity. He notes true capitulation is when investors "sell what they love and own."
The strategist highlights that since August 1st US yields are +110bps, UK yields +123bps (fastest rise since ’94), German bund yields +87bps (fastest since ‘90), French OATs +83bps (fastest since ‘94). The yield surge has been driven by inflation (German PPI +46%), central banks (~300 rate hikes past 12 months), but also fiscal deficit given new era of govt bailouts in every crisis + worsening geopolitics = more military spend (war is inflationary).
Looking at weekly flows, the strategist noted inflow to cash of $30.3 billion, outflows from gold of $0.4 billion, bonds of $6.9 billion, and equities of $7.8 billion.
The firm's Bull & Bear indicator is back to max bearishness of 0.0.
Hartnett does not see the lows in stocks yet given inflation/rates/recession shocks are not over and the bond crash in recent weeks means highs in credit spreads. He would "nibble" at 3600 S&P 500, "bite" at 3300, and "gorge" at 3000.
The strategist said the bear risk is a 1987-type situation, while the bull risk is a 1975-type situation that had small-cap significantly outperform.