U.S. Markets

Investors see transitory inflation and peaceful Fed taper - BofA survey

LONDON (Reuters) - The majority of investors surveyed by BofA believe inflation is transitory and expect the U.S. Federal Reserve to signal a dial back in monetary stimulus by September, the investment bank said on Tuesday.

Unprecedented stimulus sparked worries about inflation earlier this year, driving U.S. 10-year borrowing costs to 1.8% in March and spooking stock markets. But those concerns have abated recently, pushing stocks to record highs and benchmark U.S. bond yields back below 1.5%.

“Investors (are) bullishly positioned for permanent growth, transitory inflation and a peaceful Fed taper,” said Michael Hartnett, chief investment strategist at BofA, adding that 63% of the investors believe Fed will signal a taper by September.

Some 72% of investors said inflation was transitory, according to the June BofA survey.

Still, inflation and a “taper tantrum” -- a selloff related to the Fed scaling back its quantitative easing programme -- remained the top tail risks for markets, BofA’s survey of 224 fund managers with $667 billion in assets under management showed.

BofA said the investment cycle was shifting from early to mid-cycle and that investors don’t expect a recession until 2024 at the earliest.

Investors said value stocks, so-called because they trade at cheaper valuations than their growth-oriented peers, and tech stocks are poised to perform well in the next four years.

Long commodities overtook Bitcoin as the “most crowded” trade in the survey, but still 81% of investors surveyed said the cryptocurrency was in “bubble” territory.

Reporting by Thyagaraju Adinarayan; editing by Dhara Ranasinghe and Emelia Sithole-Matarise