Appetite for longer-dated US bonds has shot up since the Federal Reserve signaled interest-rate hikes are unlikely, laying the groundwork for cuts later this year, according to a Bank of America client survey.

A gauge of investors’ desire to extend duration in their portfolios has climbed to the highest in a year and is near its most-elevated level since the US bank started conducting the survey in 2011. Investors typically avoid long duration, which measures a bond’s sensitivity to interest-rate changes, during times of monetary-policy uncertainty.

The change in sentiment suggests money managers are more comfortable betting the Fed will cut rates later this year since Chair Jerome Powell last week struck a less hawkish tone than some had feared. A soft reading for US jobs has also emboldened the view, with bond traders pulling forward their expectations for the Fed’s first interest-rate cut by one month to November.

The BofA poll was conducted between May 3 and 8 — after the Fed decision — and showed that 49% of respondents said that being long rates was their highest-conviction trade of the year. That’s up from 30% in April. A separate report from the bank earlier showed global bond funds had their biggest weekly inflows in more than three years this week.

By setting a very high bar for further hikes, Powell “triggered a dip buying mentality,” BofA strategists led by Ralf Preusser wrote in the survey report.

Still, the survey showed clients’ positioning doesn’t yet reflect their latest thinking. The gap between the sentiment gauge and actual long US duration exposure has yawned to its widest ever, BofA said.

Investors are also bullish on duration elsewhere, with a global sentiment gauge at the highest since 2021. The European Central Bank and the Bank of England have signaled interest-rate cuts can come as soon as next month.

And BofA’s clients are the most bearish on the Japanese yen since 2022, flipping from a long-held bullish stance. The yen slumped to a three-decade low versus the dollar last month, prompting suspected intervention from Japanese authorities to support the currency.

“There is deep skepticism around the effectiveness of Japan’s FX intervention,” the strategists said. The survey showed that most respondents expect the yen to retest 160 per dollar, while none see it recovering to 150 per dollar. 

This article was provided by Bloomberg News.