U.S. Treasuries Witnessing Unprecedented Inflows, According to BofA

U.S. Treasuries are experiencing an unparalleled influx of investments, with investors seeking out remarkable yields in recent months, Bank of America Corp. analysts report. Recent data from EPFR Global, as indicated in a report by lead strategist Michael Hartnett, shows that cash funds accumulated $20.5 billion while bond inflows reached $6.9 billion in the week ending August 9. Contrastingly, U.S. equities experienced a decline, marking their first withdrawal in three weeks, amounting to $1.6 billion.

The cumulative investments in Treasuries for the current year stand at a whopping $127 billion, on pace to achieve an annual record high of $206 billion, as per BofA's analysis.

Despite prior predictions of an economic downturn and bond rally not coming to fruition, the fixed-income market's appeal remains undiminished. Friday's data reveals that the 10-year U.S. Treasury yield is approximately 4.09%, a significant increase from its April lows of around 3.25% and nearing its peak of the past 15 years.

Steven Major, HSBC Plc's chief of fixed-income research, notes, "With the 10-year benchmark again nearing its peak, it offers a lucrative prospect for bond investors with an eye on long-term gains."

In light of the Federal Reserve's continual rate increments, investors are increasingly directing their funds towards money-market funds. The aggregate value of these funds has now reached an unprecedented level.

Last year, the Fed embarked on one of its most assertive tightening regimes, leading to substantial losses for bondholders. However, the stock market remains robust, thanks to consistent corporate profits. The recent momentum of the S&P 500, though, appears to be waning.

Hartnett suggests that the escalating capital cost won't see a decline unless there's a severe economic downturn, which might impact the stock market negatively. Despite his earlier accurate bearish predictions, his pessimistic outlook for the stock market in 2023 remains to be seen.

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