Investors Moving Money Out of Stocks and into Bonds

Report: Investors Moving Money from Stocks to Bonds on Global Economic Growth Concerns

U.S. Treasury yields are rising for a second session after Wednesday’ spike to their highest level since early February. The move is helping to breathe a little life into the beat-up U.S. Dollar. At the same time, it could be an early sign that the worst of the selling in the U.S. equity markets may be over for the week.

At 0643 GMT, March 10-year U.S. Treasury note futures are trading 120’30, down 0.04 or -0.10%. On Wednesday, the futures contract spiked to 121’13.5 before settling at 121’05.5. Futures markets move inverse to yields.

On Thursday, the March 30-year U.S. Treasury bond futures contract jumped to 146’00 before settling lower at 144’11. A closing price reversal top chart pattern was formed on the move, which suggests the selling may be greater than the buying at current price levels.

Investors Fleeing Stocks and Buying Bonds

Earlier in the week, a survey of fund managers released on Tuesday showed investors are fleeing stocks and buying bonds in record numbers amid the global sell-off in equities.

“Investors are approaching extreme bearishness. This month’s survey [found] the biggest ever one-month rotation into the asset class” of bonds, Bank of America Merrill Lynch said in the survey. The research is one of the most widely followed surveys of investors on Wall Street.

The report also showed that more than half of investors expect global economic growth to weaken over the next year. That’s “the worst outlook on the global economy since October 2008,” the survey said.

MoM PPT CHG in Investor Positioning

Furthermore, investors cited a trade war as the biggest concern for the seventh consecutive month. Finally, worsening economic conditions in China was another top risk.

As far as individual stocks are concerned the survey said “For the first time in nearly a year, the FAANG trade ‘is no longer the most crowded trade’ by investors. With the five FAANG stocks – Facebook, Amazon, Apple, Netflix and Google-parent Alphabet – currently in or near bear markets, investors are seeking shelter in the safe-haven U.S. Dollar, as well as shorting emerging markets.

U.S. Dollar Treading Water

Although the U.S. Dollar is inching higher on Friday against a basket of currencies, gains are likely to be capped by year-end positioning, heightened volatility in the financial markets, a collapse in oil prices and a threat of a U.S. government shutdown.

U.S. Dollar Index has been sliding all week with selling pressure driven by rising risks to global growth. Furthermore, the steep drop in crude oil prices is emitting a strong disinflationary signal to the financial markets. This is contributing to the plunge in U.S. Treasury yields which is helping to make the U.S. Dollar a less-attractive investment.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.