Bank of America’s global research department released a report on Friday (23rd) predicting that global government bond losses will be the worst year since 1949, and investor sentiment has fallen to the lowest since the financial crisis.
Since Aug. 1, U.S. government bond yields have surged 110 basis points, U.K. bond yields have surged 123 basis points, French sovereign green bond (OAT) yields have risen 83 basis points, the fastest rise since 1994, and German bund yields have risen 83 basis points. Yields rose 87 basis points, the fastest rate since 1990.
Michael Hartnett, a securities strategist at Bank of America, predicts: “The situation is extremely severe, and the decline in global public debt in 2022 will be more severe than since 1949 (the Marshall Plan), 1931 (the Austrian Credit Bank crisis), 1920 (Versailles).”
Citing data from EPFR Global, Hartnett pointed out that in the week ended September 21, bond funds outflowed $6.9 billion, while global equity funds saw outflows of $7.8 billion.goldAn outflow of $400 million. Meanwhile, the Bank of America’s Bull/Bear Indicator is back at maximum bearish levels.
The data also pointed out that investors’ cash holdings increased by $30.3 billion, and investor confidence fell to the worst level since the 2008 global financial crisis.
Hartnett predicts that the bond crash might lead to a credit event and threaten the world’s most crowded trades, including the dollar, technology stocks, etc., when investors sell what they like and hold, that’s when the bond market really capitulates.
Hartnett further noted that investors are facing more shocks from inflation, interest rates and a recession, while the bond meltdown in recent weeks has shown high credit spreads and stocks have yet to bottom out.