BofA’s weekly flows report showed investors put $31.5 billion into equities, while taking $1.8 billion out of gold and $15.4 billion out of bonds. Bond yields spiked higher last week on inflation fears, while high-flying tech stocks sold off as investors rotated into cheaper value stocks.
Citing data from EPFR Global, BofA said last week saw the third-largest flows into emerging market stocks ever, and second-largest into value stocks.
“We believe 2020 marked a secular low point for inflation and rates,” BofA said in the report, noting the big outperformance of the Russell 2000 index versus the tech-heavy NASDAQ.
BofA also said the U.S. government will spend $879mn every hour in 2021 causing either a rise in bond yields, or a fall in the dollar to “fund fiscal excess”. U.S. debt sustainability will cause higher volatility when higher yields combine with a lower U.S. dollar.
Quantative easing and yield curve control in the G7 group of economies are “no longer pushing rates/spreads/vol lower”, BoFA said, noting that interest rates and volatility are “no longer anchored”. Financial conditions are well past “peak easy”, the report said.
