A Bank of America poll shows investors increased duration longs starting at the beginning of August and largely stuck with them. At the same time, sentiment on the path for rates deteriorated, leaving portfolios leaning one way while expectations pointed another.
In a note published Friday, BofA strategists linked the upswing in yields to rising energy costs stirring inflation concerns, with selling across other global bond markets making the move worse. That mix arrived just as investors were heavily positioned in longer-duration European and UK debt.
"The gap between duration exposures and views is at record highs in EUR and GBP. Buyers' regret is pronounced," wrote strategists including Ralf Preusser. They argued this sheds light on the force of the gilt and bund slide as central-bank paths were repriced this week, despite many investors still expecting the European Central Bank to undo course next year.
Yields have pushed to levels last seen decades ago. France's 10-year now sits at 4.46%, matching highs from the financial-crisis era. Germany's benchmark touched its highest since 2009 this week. UK gilts were swept along as well, with the 30-year yield approaching 6%.
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Crowded long-duration bets met a global bond selloff and rising inflation worries, sending European and UK yields to marks not seen in decades. The practical takeaway is simple: make sure your fixed income positioning actually matches your view on rates, or you might be riding a risk you did not plan for.
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