Bank of America Corp. Forecasts Treasury Yield Curve Steepening

The Bank of America Corp. US economics team reports that the Treasury yield curve is biased to steepen, driven by investor positioning that favors short-term bonds over long-term securities. This shift followed the July Federal Open Market Committee meeting, which triggered a movement in fund inflows and asset manager positioning toward the front end of the curve.

Active bond funds have moved sharply underweight duration, while Commodity Trading Advisors remain heavily short, particularly at the front end. The bank expects the July core Consumer Price Index to print at 0.20% month-over-month.

Bank of America Corp. notes that if upcoming inflation data does not support a September rate increase, the resulting market reaction could challenge the current crowded bearish positioning and the exposure of active funds and Commodity Trading Advisors.