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Asset managers have begun selling bonds and adding to their cash holdings after bond allocations among fund regulators fell 17 percentage points from the same period last year, according to a survey of fund managers from Bank of America released this week.
The amount of money they held in money market funds and other cash instruments increased by 13 percentage points over the same period.
Taking profits on bonds now makes sense. Because short-term interest rates are so high compared to medium- and long-term returns, junk bonds do not pay a much higher yield than Treasury bonds.
At the same time, monetary officials warned that markets were overconfident that interest rate cuts would come soon. Traders are largely reducing their bets on central bank rate cuts this year.
For his part, Adam Darling, high yield fund manager at Jupiter Fund Management, said: “This month, despite the upward trend in its value, there should be a risk-selling move rather than aggressively chasing risk. If the data suggests anything other than a soft landing and there will be major panic in the market.”
Interest rate traders in the euro zone and the United States are currently expecting more than five 25 basis point interest rate cuts this year and more than four from the Bank of England, according to data compiled by Bloomberg.
Source: Bloomberg
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