28% of Fund Managers See Inflation Underpriced, Fed Hike Risks Rise
Bank of America’s May FX and Rates Survey of 60 managers overseeing $869 billion finds 28% view U.S. growth as priced but inflation upside underpriced, up from 14%, while 25% foresee Fed rate-hike surprises. This shift weakens long rates, strengthens the U.S. dollar and fuels “long risk” (47%) and commodities (22%).
1. Survey Overview
Bank of America’s global FX and Rates Sentiment Survey conducted May 15 polled 60 institutional fund managers overseeing $869 billion in assets to gauge risk positioning across fixed income, foreign exchange and alternative allocations.
2. Inflation Upside and Fed Hike Risks
Respondents indicating U.S. growth is well-priced but inflation upside underpriced rose to 28%, up from 14% last month, and 25% now view the Federal Reserve as likely to surprise markets with additional rate hikes beyond current expectations.
3. Market Behavior Shifts
Mounting hawkish risks have eroded conviction in long-duration bonds and catalyzed U.S. dollar strength, while institutional capital rotates out of cash into crowded themes: 47% in “long risk” trades and 22% in long commodities positions.
4. ECB and Emerging Market Sentiment
A 58% majority of managers regard potential ECB rate hikes as prudent for price stability against 31% calling further tightening a policy mistake; emerging market debt sentiment rebounded to neutral-overweight for local currency bonds despite geopolitical uncertainties.