Half of Fund Managers Still Expect Fed Rate Cut in Next 12 Months, BofA Survey Says — Market Talk

BAC +1.85% LSEG +2.09% 1034 GMT - Half of investors surveyed in Bank of America's global fund manager survey still forecast the Federal Reserve will cut interest rates in the next 12 months, despite rising inflation expectations, the May survey says. Another 16% expect the Fed to stay on hold, while 16% expects the central bank to raise interest rates, the survey says. Money markets price in a 25-basis points rate increase by March 2027, and see a possibility of a hike in 2026, according to LSEG. (emese.bartha@wsj.com) 1031 GMT - Yields on U.K. government bonds, or gilts are expected to stay high as investors attach a fiscal risk premium to the bonds, Nuveen's Laura Cooper says in a note. Gilt yields have risen recently as U.K. Prime Minister Keir Starmer comes under pressure to resign and investors fear any replacement could favor greater public spending. "There is a growing risk of looser fiscal discipline under leadership uncertainty, though bond markets are likely to keep government spending ambitions in check," Cooper says. Expectations of increased gilt supply and weaker demand for long-dated gilts could also keep yields elevated, she says. Ten-year gilt yields fall 8 basis points to 5.058%, having climbed to 5.190% on Monday, their highest since 2008, Tradeweb data show. (miriam.mukuru@wsj.com) 1012 GMT - Almost two thirds of investors think that the 30-year U.S. Treasury yield could rise above 6% in the next 12 months, Bank of America's global fund manager survey says. "Assuming a big move in yields the next 12 months, 62% of fund manager survey investors think the 30-year U.S. Treasury yield would rise above 6%," it says. Only 20% think that yields would fall below 4%, it says. The 30-year Treasury yield last trades flat at 5.150%, having hit a one-year high of 5.159% on Monday, according to Tradeweb. (emese.bartha@wsj.com) 1009 GMT - Pessimism on global growth drops, with global investment sentiment in May recovering to its highest level since February, Bank of America's global fund manager survey says. Currently only 4% of investors predict a "hard landing" of the economy--or a sharp economic slowdown or even recession--, the survey says. The survey also reveals a record jump in investors expecting double-digit EPS growth while concerns over Iran are subdued, with 66% expecting the bottleneck with the Strait of Hormuz to end in the next few months, BofA says in a press release accompanying the survey. (emese.bartha@wsj.com) 1005 GMT - Prospects of U.S. interest-rate rises due to high energy prices are supportive for the dollar, The Revacy Fund's Zaheer Anwari says in a note. "Persistent inflation pressures are pushing markets towards a higher-for-longer view on rates," the co-founder and CEO says. U.S. money markets fully price in a 25 basis-point rate increase by the Federal Reserve by March 2027 and a 62% chance of an increase by the end of 2026, LSEG data show. For now, both the dollar index and oil continue to trade within ranges, reflecting the broader uncertainty in global markets, he says. The DXY dollar index rises 0.1% to 99.25. (emese.bartha@wsj.com) 0947 GMT - Malaysia's inflation is expected to exceed 2.0% from May, as Middle East-linked supply pressures continue to lift fuel and food costs, UOB economists Julia Goh and Loke Siew Ting say in a note. Malaysia's headline inflation rose to 1.9% in April, while UOB expects full-year 2026 inflation to average 2.0%. The latest inflation and GDP data support a cautious stance by Bank Negara Malaysia amid external headwinds and second-round inflation risks, they say. They expect the overnight policy rate to remain at 2.75% until clearer shifts emerge in global and domestic conditions. (yingxian.wong@wsj.com) 0940 GMT - U.S. Treasury yields stay edge lower while the dollar turns slightly higher. President Trump's announcement of a delay to a planned military strike against Iran to allow negotiations to proceed improves sentiment, but uncertainty remains, The Revacy Fund's Zaheer Anwari says in a note. "The lack of clarity around diplomatic progress and the risk of renewed escalation are still keeping markets cautious," he says. Persistent disruption in the Strait of Hormuz could keep oil prices elevated too, reinforcing inflation concerns and sustaining upward pressure on Treasury yields, the co-founder and CEO says. The 10-year Treasury yield falls 1.2 basis points to 4.610%, although 30-year yields edge slightly higher, according to Tradeweb. The DXY dollar index edges up 0.1% to 99.281. (emese.bartha@wsj.com) 0936 GMT - The April rebound in China's cross-border inflows reflects the country's competitiveness and relative stability amid global financial uncertainty, HSBC chief Asia economist Frederic Neumann says. April data earlier showed foreign inflows resumed after a temporary outflow in March, continuing a broader trend in place since September 2025. The run of inflows reflect China's strong trade performance, which is boosting exporters' overseas earnings, he says. Exchange-rate strength has also encouraged them to convert dollar proceeds back to yuan. Investor appetite for Chinese high-tech companies is driving capital inflows too. All this supports the yuan while other regional currencies come under pressure, Neumann adds. The trend could open the door for the PBOC to keep monetary policy accommodative, removing the need to hike rates to ensure FX stability as funding costs climb. (jason.chau@wsj.com) 0911 GMT - Yields on U.K. government bonds, or gilts, and sterling fall after the latest U.K. labor market data showed fragility in the jobs market. The unemployment rate increased to 5.0% in the three months to March. Average wage growth, excluding bonuses, also slowed to 3.4% in the three months that ended in March, from 3.6% in the three months to February. The data reduce prospects of the Bank of England raising interest rates in the coming months to tackle inflation, MUFG's Lee Hardman says in a note. Ten-year gilt yields fall 7 basis points to 5.068%, Tradeweb data show. Sterling falls 0.3% to $1.3394. (miriam.mukuru@wsj.com) 0904 GMT - Near-term volatility in bond yields could keep markets on edge but current attractive yields and growth risks point to an appealing risk-return profile for short- and medium-maturity quality bonds, UBS Global Wealth Management's Mark Haefele says in a note. "Yield volatility is likely to pick up further the longer the Strait of Hormuz remains closed, with markets pricing the upside risks to inflation and tighter monetary policies across the world," the CIO says. However, UBS GWM maintains the view that quality bonds offer an appealing risk-return profile given two-sided risks of inflation and growth. "We also do not expect higher yields to derail the current equity rally," Haefele adds. (emese.bartha@wsj.com) 0849 GMT - The August 2031 index-linked gilt valuation is expected to fall in the coming months, making the gilt less appealing, RBC Capital Markets strategists say in a note ahead of an auction of the bond at 0900 GMT. RBC expects that Tuesday's auction will likely be the second-last tap of the August 2031 index-linked gilt, with another possible on July 1. Confirmation of this would likely weigh on the bond, the strategists say. (miriam.mukuru@wsj.com) 0847 GMT - German businesses are hoping for a swift agreement among EU institutions on the U.S. trade deal ahead of talks Tuesday evening, according to DIHK, the German Chamber of Commerce and Industry. Agreements with the U.S. must be consistently implemented, given the threat of further tariffs and legal uncertainty even if those agreements are in part unsatisfactory, DIHK says. The current deal can help stabilize relations for the time being and buy time that Europe should use to pursue further trade agreements and partnerships, and to reduce strategic dependencies, it says."The asymmetrical nature of the EU-U.S. deal must not become a benchmark for European trade policy."