Investors are moving away from US Treasuries, according to BofA Global Research, with data from the CFTC showing flatter flows from asset managers last week. Shorter duration bonds are especially losing traction.
Asset managers only initiated five-, 10- and especially 30-year longs last week, alongside shorts in five-year SOFR futures. Five-years Treasuries saw the most longs closed, and 10-years the most shorts covered.
On a monthly basis, two-year Treasuries saw the largest longs initiated and 20-years the largest shorts.
Outflows from US fixed income funds were at their highest since last April’s Liberation Day shocks last week. High yield funds, by contrast, saw inflows rise.
Foreign investors remain net sellers, and BofA observes that Japanese investors cut back on their UST holdings early. In February, private investors in the country sold more than US$18 billion in the instrument – a record since June 2022. Since the end of February, holdings have declined by approximately US$30 billion.
Active benchmark funds have rotated to underweight USTs and overweight mortgage-backed securities (MBS). “This could underscore strength of market views fading recent uptick in US rate vol. It also likely reflects active funds maintaining portfolio drift over the month of March given MBS outperformance vs USTs,” BofA suggested.
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