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Investors shun U.S. Treasuries, stockpile cash – BOFA

Randy Mancini 13 Jan 7
FILE PHOTO: The Federal Reserve building is pictured in Washington, D.C.
FILE PHOTO: The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. REUTERS/Chris Wattie

January 7, 2022

LONDON (Reuters) – Investors have stormed out of U.S. Treasuries and pumped money into cash and bank loans since the start of the year as global markets have braced for higher interest rates, BofA’s weekly flow show stats showed on Friday.

“Rates shock in 2022 to follow inflation shock of 2021 and financial conditions will tighten sharply,” analysts led by Michael Hartnett, chief investment strategist at the U.S. investment bank said in a note.

Minutes of the U.S. Federal Reserve’s December policy meeting this week showed that policymakers are preparing the decks for a faster trajectory of interest rate increases. Money markets in the U.S. and the U.K are expecting rate hikes as early as March.

BOFA strategists calculated that global central banks have bought $26 billion of assets every trading day in the pandemic era, pushing up global equity market capitalisaton by $133 billion on a daily basis.

On a cumulative basis, investors have also pumped a record $949 billion in equity inflows in 2021, more than the cumulative inflow of the past two decades.

On a weekly basis, a $2 billion outflow from U.S. Treasuries was the biggest in a year, energy stocks saw large inflows, while European equities registered their first inflows in eight weeks.

Cash levels were also building, although there was no risk-off sentiment in equity flows yet. BofA’s ‘private clients’ which manage $3.3 trillion of assets had 11.2% in cash, the highest since last April, and the past week saw the biggest inflow to cash since July 2020, BofA’s note added.

(Reporting by Saikat Chatterjee; editing by Marc Jones)