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Bonds ‘in greatest bear market of all time’, Bank of America says

Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo Acquire Licensing Rights

LONDON, Oct 6 (Reuters) – The rout in the fixed-income market is causing the “greatest bond bear market of all time”, Bank of America Global Research said in a note on Friday, as the peak-to-trough loss in the U.S. 30-year yield hit 50%.

In its weekly “Flow Show” report, BofA said bond funds saw $2.5 billion in outflows in the week to Wednesday, citing EPFR data.

Yields on 30-year Treasuries rose above 5% for the first time since 2007 on Wednesday, pushing the yield up 15 basis points on the previous week and rattling investors.

BoFA’s report showed that the current loss in 30-year bonds from the peak in the market in July 2020 to now far outpaces that of any previous bear market, making this one what it calls “the greatest of all time” and the “humiliation trade” right now is buying bonds.

However, the entire bond market has not come under the same fire as 30-year debt. Yields on two-year Treasuries , fell 9 basis points in the week to Wednesday, as investors scooped up shorter-dated paper.

Indeed, Treasuries funds saw inflows of $4.6 billion, marking a 34th straight week of inflows.

“No capitulation here,” BofA strategists, led by Michael Hartnett, said.

Equity funds saw $3.3 billion of inflows in the most recent week, taking net inflows year-to-date to $110 billion, as flows into exchange-traded funds have outpaced withdrawals from long-only products, the report showed.

BofA said its “Bull & Bear indicator”, dropped to a five-month low of 2.6 on poor equity breadth, outflows from emerging markets, high yield bonds and developed market stocks.

The strategists said they are still bearish on risk assets due to the “price of money” and as higher-for-longer interest rates lead to a hard landing.

BofA said it prefers to “sell the rips” in the upper half of S&P 500’s (.SPX) range of 3,600-4,200 as they are “convinced the bear market has unfinished business”.

Reporting by Samuel Indyk; Editing by Amanda Cooper and Sharon Singleton

Our Standards: The Thomson Reuters Trust Principles.

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