FUND MANAGERS FLOCK TO U.S. EQUITIES AS BETS SURGE FOR 30-YEAR TREASURY YIELDS TO BREAK 6%

 

Global institutional investors have pushed their allocations in U.S. equities to record monthly highs, even as they heavily bet that long-term U.S. borrowing costs will skyrocket to levels not seen since 1999.

According to Bank of America’s May global fund manager monthly survey, market risk appetite is surging alongside rising pressure on long-term interest rates. The survey, which pooled 200 respondents managing a collective $517 billion in assets between May 8 and May 14, highlights a dramatic shift out of cash and into riskier assets.

Key Takeaways from the BofA May Survey:

• Equity Surge & Cash Drop: A net 50% of surveyed fund managers reported being overweight on U.S. stocks in May. This marks a massive 37 percentage point leap from April's 13%, registering the largest single-month increase in the history of the survey. Concurrently, average portfolio cash allocations dropped from 4.3% to 3.9%.

• The 6% Treasury Target: If U.S. Treasuries experience significant volatility over the next 12 months, 62% of respondents predict the 30-year U.S. Treasury yield will break above 6%. This would represent an approximate 85 basis point surge from current levels, which hover around 5.13% to 5.14%. Only 20% of managers expect the yield to drop below 4%.

• The Inflation Threat: Despite aggressive stock buying, institutional investors are highly alert to macroeconomic dangers. A "double-dip inflation" cycle was identified by 40% of respondents as the single largest tail risk facing the global economy.

AI Spending and Earnings Drive Stock Optimism

The historic rotation into U.S. equities is being fueled by a robust corporate earnings season, massive capital expenditure on artificial intelligence (AI), and lingering expectations of eventual interest rate relief from the Federal Reserve.

Fears of an imminent recession have largely dissolved among elite fund managers. Only 4% of those surveyed predict a "hard landing"—a scenario involving sudden economic contraction and labor market deterioration. Conversely, 39% expect a "no-landing" scenario, meaning the U.S. economy will sustain its strong momentum without slowing down.

Geopolitical Friction Anchors High Bond Yields

The pressure pushing long-term bond yields higher is tightly bound to ongoing geopolitical standoffs. International crude oil prices have climbed above $100 per barrel, driven in part by a stalemate in peace negotiations between the United States and Iran.

Furthermore, institutional investors are keeping a close watch on key shipping choke points. A significant 66% of respondents expect the ongoing supply bottleneck in the Strait of Hormuz—the world's premier oil transit route—to persist for several months, guaranteeing that energy-driven inflation will remain a critical variable for global bond portfolios well into the year.