Bank of America sees Treasury curve biased to steepen

Investing.com -- Bank of America said the Treasury yield curve is biased to steepen as investor positioning continues to favor short-term bonds over long-term securities.

Fund inflows and asset manager positioning both shifted toward the front end of the curve following the July Federal Open Market Committee meeting, the bank said. Its futures positioning proxy has moved from signaling an outright selloff to a curve-oriented setup.

Active bond funds moved sharply underweight duration after the July FOMC meeting, which creates room to add risk back if inflation data ease concerns about higher interest rates. Commodity Trading Advisors remain heavily short, particularly at the front end of the curve, though momentum signals have not yet turned.

This week's inflation data is particularly important for front-end shorts, Bank of America said. The bank's US economics team expects core Consumer Price Index to print at 0.20% month-over-month in July. That reading would leave September rate hike expectations unresolved unless the details suggest firmer Personal Consumption Expenditures inflation.

A print that does not support a September rate increase could challenge crowded bearish positioning, especially given the combination of large CTA shorts and underweight active fund exposure, the bank said.

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