Bond Yields, Not AI Bubble, Biggest 'Tail Risk' Threat, BofA Survey Says — Market Talk
1311 ET - Rising bond yields beat out the prospect of an AI bubble as the biggest "tail risk," according to the latest Bank of America survey of global fund managers. About one-third of survey respondents named a "disorderly rise in bond yields" as the biggest tail risk, while 28% named an AI bubble, down from 32% in August. Bond yields have been climbing, fueled by surging energy prices brought on by the Iran war and growing national debt among other factors. The 10-year Treasury yield touched 5.04% earlier, its highest level since 2007. ([email protected])1310 ET - The AI data center boom is expected to keep chugging along, according to Bank of America's latest survey of global fund managers. Of those surveyed, 79% said they do not expect one of the AI hyperscalers to announce a cut in capital expenditures this year, up from 71% in August. But investors see the spending as carrying some risk: 42% of respondents named AI hyperscaler capex as the most likely source of a systemic credit event, and net 33% said companies are overinvesting. As for the most crowded trade, 53% identified "long global semiconductors" which matched last month's survey. ([email protected])1203 ET - Investors are increasingly expecting global interest rates to rise, according to findings from Bank of America's September survey of global fund managers. 41% of surveyed investors said they expect the Federal Reserve to raise rates before the U.S. midterms, up from 22% in August, while the proportion of investors who don't expect a rate hike fell to 52% from 72%. A net 32% of investors expect higher short-term rates, and net 25% said global monetary policy is too stimulative - with both metrics at their highest level since September 2022. Net 4% of investors expect lower global inflation, a reversal from the previous month. ([email protected])1133 ET - Bitcoin's price is under pressure from both long-term investors and short-term traders rushing to sell and lock in their profits, analysts with Glassnode say in a note. The cryptocurrency has bounced up to trade near a 47% premium to the average price that traders paid for it, meaning most sales are profitable right now, the analysts say. Long-term and short-term holders seem to be cashing out in roughly equal amounts, they say. But the shift toward profit-taking matches behavior seen during other price surges in recent years, signaling that the latest rally hasn't peaked or collapsed yet, the analysts say. ([email protected])1110 ET - The Iran war is creating sharply different fiscal outcomes across the Gulf depending on countries' ability to keep hydrocarbons flowing, Capital Economics says. Higher energy prices are more than offsetting limited export disruption in the U.A.E. and Oman, improving their budget balances this year. By contrast, budget balances are expected to deteriorate by around 2% of GDP in Saudi Arabia, around 5% in Kuwait and Bahrain, and as much as 10% in Qatar compared with last year. ([email protected])1059 ET - Bitcoin's recent pullback from the $79,000 level reflects continued uncertainty among investors ahead of the upcoming Federal Reserve meeting rather than a bearish trend reversal, XS.com's Simon-Peter Massabni says in a note. The cryptocurrency's price action of late highlights a clash between buyers trying to defend current levels and sellers concerned by a stronger U.S. dollar and rising interest rate expectations, Massabni says. "The Federal Reserve remains the most influential factor in Bitcoin's short-term outlook," he says. The central bank's interest rate decision is important, but so is the messaging that policymakers are sending about the future of monetary policy, Massabni says. Bitcoin is down 3% at $75,940, according to data from CoinGlass. ([email protected])1049 ET - Investors should focus on the vote split at the Bank of England rate decision on Thursday for a signal on the possibility of a BOE interest-rate increases in future months, Peel Hunt's Kallum Pickering says in a note. Additionally, communication by monetary policy committee members could provide clues, he says. If BOE Governor Andrew Bailey doubles down on his comments about second-round inflation effects being subdued, this could lower expectations of BOE rate increases, Pickering says. However, if the governor indicates higher inflation expectations then markets will see that as an endorsement of current market pricing, he says. Investors fully price in a total of four BOE rate increases by mid-2027, LSEG data show. ([email protected])1006 ET - San Antonio is the most popular migration destination for Gen Zers, Redfin says. Houston is the hottest spot for millennial movers. Gen Zers are gravitating toward Washington, D.C. and Nashville--metros with plenty of job opportunities, along with lively social scenes. Millennials favor metro areas like Dallas and Baltimore--places that can offer more affordable housing. One thing the generations have in common: New York and Los Angeles are among the places they're most commonly leaving. Affordability is part of the story in pricey New York and Los Angeles, but Gen Z migration isn't purely about housing costs. Moves among young adults are also heavily influenced by college, first jobs and the transition from school into the workforce. ([email protected])1006 ET - The dollar could suffer some knee-jerk weakness if the Federal Reserve raises interest rates as expected but signals fewer future rate rises than markets anticipate Wednesday, TD Securities strategists say in a note. The Fed could lift rates by 25 basis points but this is largely priced in, they say. Fed Chairman Kevin Warsh could cite higher-than-expected inflation as the motivation for potentially raising rates, they say. While he'll probably avoid forward guidance, the dot plot projections could show a median of two rate rises, they say. The DXY dollar index rises 0.2% to 99.566. ([email protected])1002 ET - Investors would increase their government bond allocations if yields climbed to an attractive level, such as the 30-year U.S. Treasury yield reaching 6%, according to 27% of fund managers in the Bank of America global fund manager survey for September. A total of 19% of fund managers polled said they would need to see "a major top in stock markets" before shifting their allocations towards more government bonds, the survey shows. U.S. 30-year Treasurys climbs 3.9 basis points to last trade at 5.367%, having hit a 19-year high of 5.401% earlier in the session, LSEG data show. ([email protected])0949 ET - Federal Reserve meetings could have less impact on the dollar under Chairman Kevin Warsh due to his rejection of explicit forward guidance, Commerzbank analysts say in a note. Instead, data are likely to become more influential in determining the dollar's direction as they provide clues about monetary policy, they say. A lack of information about the future policy path, however, doesn't mean Fed decisions will have no effect on the dollar. "The focus on meeting days will simply shift away from the press conference and towards the statement, voting patterns, and other signals." The Fed announces its next decision on Wednesday. The DXY dollar index rises 0.2% to 99.562. ([email protected])0912 ET - There was little movement in job openings in Canada during 2Q, Statistics Canada data shows 510,200 job vacancies during the period, holding steady following the 2.7% increase the prior quarter. Job vacancies increased 2.8% for part-time roles but showed little change full-time jobs and between permanent and temporary positions. There also was little change in overall job vacancies compared with a year earlier. Still, data show the proportion of longterm vacancies--those that have been open for 90 days or more--stood at 25.9% in 2Q. That is down 2.1 percentage points from the quarter before, and suggests employers had fewer difficulties filling positions compared with a year earlier. ([email protected]; @RobbMStewart)