Bond Bubble Brewing? BofA Report Reveals Investors’ Fears

• Bond and cash reserves are on the rise, according to Bank of America.
• Investors fear a potential recession, leading to an increase in bond allocations.
• BofA report respondents are hopeful for a soft landing, but Ryan Payne warns of a possible bond bubble forming.

Bond Allocations Rise

According to a recent report by Bank of America (BofA), apprehensive investors have been pumping their bond holdings in May, as well as cash reserves, fearful of a possible recession. Managers choose to allocate into bonds – is it dangerous? The May Global Fund Manager Survey revealed managers continue to increase their bond allocations to 14% from 10% the month before. This constitutes a significant growth after bond allocations were as low as 1% in March 2023.

Understanding Bonds

Bonds are debt securities, similar to an IOU (phonetic acronym of the words “I owe you”). Governments, municipalities, or corporations issue bonds to raise funds from investors willing to lend them money for some time. When you buy a bond, you lend to the issuer and collect interest payments over time until maturity date when your principal investment is paid back. Bonds do not represent ownership and their yield may vary depending on the Federal Reserve’s policy. Notably, Fed Chair Jerome Powell has been raising interest rates up to 5% in 10 consecutive revisions since Q2 2022 with the latest hike in Q1 2023.

Risk Of A Bond Bubble

The Fed’s hawkish policy prompted Ryan Payne – President of Payne Capital Management (PCM) -to call the bond market a “dangerous place to be” at the moment since there is risk of a potential bubble forming due to high retail investor inflow into bonds throughout last ten months compared with last ten years.

Pessimism Amid Hope For Soft Landing

The May Global Fund Manager Survey also revealed that the majority of respondents still expect a soft landing despite pessimistic expectations about global economy growth that amount now up 65%. 289 fund managers who oversee $735 billion assets participated in this survey and 63% of them believe there will be a soft landing period following economic slowdown period.


The recent survey by Bank of America showed that investors continue increasing their bond allocations despite fears for potential recession and rising interest rates set by Federal Reserve Chair Jerome Powell which prompt warnings from Ryan Payne about formation of potential bubbles due to high retail investor inflow into bonds throughout last ten months compared with last ten years yet most participants expect soft landing from economic slowdown period ahead while some remain pessimistic about global economy growth overall .