LONDON (Reuters) – Investors have slightly increased their cash allocation, deeming that inflation and ‘taper tantrums’ could topple the record rally in financial markets, BofA’s March fund manager survey showed on Tuesday.
Unprecedented stimulus measures have sparked worries about inflation, driving U.S. 10-year borrowing costs to more than one-year highs of 1.62%. It has dovetailed with concerns that central banks might start withdrawing or “tapering” their support.
Fund managers asked by BofA increased their cash allocation to 4% from 3.8% in February.
A rise above 2% in U.S. 10-year Treasury yield could cause more than a 10% correction in stocks, 43% of investors surveyed by BofA with $630 billion in assets under management said. And a rise to 2.5% could make bonds attractive relative to stocks.
Though the quickfire bond selloff in the last few weeks dented tech stocks wiping hundreds of billions from the sector’s market capitlisation, ‘long tech’ remained the most crowded trade in the survey.
Investors typically are willing to pay more for near-term growth when rates rise as cyclicals tend to do well in the early days of economic boom.
Rising rates have also prompted a rush to commodities. Investors are currently their most optimistic on commodities in the survey’s near two-decade history.
(Reporting by Thyagaraju Adinarayan; editing by Marc Jones)
