Bank of America fund manager survey: If U.S. Treasuries experience significant volatility, the 30-year yield may rise above 6%; "second wave inflation" becomes the biggest tail risk.

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The Bank of America Global Fund Manager Survey for May shows that the proportion of investors overweighting U.S. equities has soared to a record high, and more than 60% of respondents bet that the yield on 30-year U.S. Treasury bonds will break above 6%. This reveals a situation where rising market risk appetite coexists with pressure on long-term interest rates.

The report reveals that, assuming significant fluctuations in yields over the next 12 months, 62% of respondents expect the 30-year U.S. Treasury yield to rise above 6%, while only 20% believe it will fall below 4%.

The current yield on the 30-year U.S. Treasury is about 5.13%-5.14%, and during Monday's session it briefly touched 5.16%, the highest level since October 2023.

The survey was conducted from May 8 to 14, covering 200 respondents managing a total asset of $517 billion. Bank of America released the results on Tuesday. Notably, the April survey did not address expectations for the direction of the 30-year yield; this is the first time this topic has been raised.

More than half of respondents are overweight U.S. equities

Net 50% of surveyed fund managers in May said they were overweight U.S. equities, a sharp rise of 37 percentage points from April's net 13%, marking the largest single-month increase in survey history. Robust corporate earnings season, continued optimism about large-scale AI capital expenditures from companies, and expectations for Federal Reserve rate cuts have jointly pushed global stock markets close to historical highs, while the average cash allocation among respondents dropped from 4.3% to 3.9%.

The core drivers supporting this round of large-scale stock holdings cover three aspects: strong corporate earnings performance, continued optimism spurred by AI-related expenditures, and the positive interest rate outlook released by prospects for Federal Reserve rate cuts.

The simultaneous decrease in cash allocation indicates a clear trend of capital shifting toward risk assets.

In terms of macroeconomic outlook, respondents overall lean toward optimism. Only 4% believe the economy will experience a "hard landing"—that is, sudden contraction in economic growth and employment; while 39% expect a "no landing," meaning economic momentum remains strong with no significant slowdown. This distribution shows that recession concerns among institutional investors have greatly subsided, providing confidence for aggressive stock allocation.

Over 60% bet on the 30-year yield breaking 6%

Regarding expectations for longer-term interest rates, respondents clearly favor upward risk. 62% believe that, should significant yield fluctuations occur in the next 12 months, the 30-year U.S. Treasury yield is more likely to break above 6% than below; only 20% bet that the yield will fall below 4%.

The yield on the 30-year U.S. Treasury is currently around 5.13%, rising to 5.16% on Monday, marking a new high since October 2023.

Despite the overall optimism, respondents remain highly alert to inflation risk. 40% of respondents list "second-wave inflation" as the current biggest tail risk, ranking highest among all individual risk factors. International oil prices are currently above $100 per barrel, and peace negotiations between the U.S. and Iran are deadlocked. These factors have already impacted the global bond market and reinforce most respondents' predictions of rising long-term rates.

The Hormuz crisis may last for months

On the geopolitical front, 66% of respondents expect the bottleneck in the Strait of Hormuz to be resolved in the coming months.

The direction of this important global oil transport channel is closely tied to international oil prices and inflation expectations, and has become one of the main macro variables closely monitored by institutional investors.

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