It's a Buyer's Market for Bonds

Bonds are out of fashion with big investors - which makes them an interesting investment opportunity for the rest of us

Bonds may be having a moment.

I've just read the best reason to buy bonds I've seen in quite a while.

The big institutional fund managers who drive the market don't want them.

And that's true even though the same institutional fund managers also think inflation is probably headed lower over the next year, and that the Federal Reserve is unlikely to hike interest rates. Logically, those would be reasons to like bonds.

But after the bond crash of 2002-03, bonds are now so out of fashion and so unloved that the big-money crowd won't touch them with the proverbial 10- foot pole.

This is the most interesting takeaway from the latest BofA Securities Global Fund Manager Survey. As regular readers know, this monthly survey is almost always valuable reading for self-directed investors, because it tells you, essentially, which parts of financial markets are in a buyer's market, and which are in a seller's market.

At any given moment, some investments or assets are in vogue with big institutional money managers, who typically move as a herd and have an outsize influence on asset prices. When they are all bullish on an asset class, it almost always means they have already driven the price of those assets up, which is great news for anyone selling but not so good for any investors who want to buy.

The reverse is true of any assets that are particularly unfashionable with big institutional investors. When they aren't interested in an asset class, it's usually a buyer's market, because there are few buyers. The price drops, and you can often get a deal.

This is the rationale behind this column's occasional "Pariah Capital" feature, where every January we look at the most unpopular assets in the survey and then track how a portfolio of those assets would perform over the next 12 months. It has an excellent track record.

Right now the standout asset seems to be bonds.

A "net 4% of July [survey] investors expect lower global inflation, a big flip from last month when net 45% expected higher inflation," said BofA strategist Michael Hartnett and his team, who produce the survey. "The outlook on rates fell alongside the [consumer-price index] outlook ... net 1% expect higher short-term rates, down from 34%."

Some 83% of those surveyed said they expected no rate hike from the Fed before the November midterm elections, compared with just 14% who did expect one. Some 36% expect at least one rate hike next year, while 29% expect no hike.

All of these things should make fund managers reasonably interested in owning bonds, which do well when inflation falls. Yet instead, according to one BofA measure, this crowd will hardly touch them. The net overweight ratio is "minus 34%," meaning that the percentage who are underweight bonds compared with their benchmarks exceeds the percentage who are overweight them by 34%. (It is one of the measures BofA uses to track asset popularity.)

This isn't a record low. But it is low. By definition, you would expect fund managers to be as invested in bonds as their benchmarks. If someone is tracking, say, a standard portfolio of 60% stocks and 40% bonds, in normal circumstances you would expect that percentage of their portfolios in bonds.

The survey was carried out from July 2 to July 9, before the nonexistent cease-fire with Iran formally broke down - and before the softer-than-expected June inflation figures were reported.

I should add that by a couple of other measures, including "Z-scores" (don't ask), bonds don't look quite so unpopular.

But the overall picture is pretty clear. Right now fund managers are heavily - heavily - overinvested in the stock market, especially the U.S. stock market. They are underweight bonds and cash, meaning, basically, 3-month Treasury bills or similar, which now constitute on average 3.6% of their portfolios. BofA Securities calls this level "uber-low."

Bonds, which produce steady income, are rarely exciting, but they are typically much more stable than stocks. They do well when inflation expectations fall, because that increases the real, purchasing-power value of the bonds' future interest payments.

Simple, low-cost bond portfolios anyone can buy include the Vanguard Total World Bond ETF BNDW, which is split 50% into a U.S. bond index fund and 50% into a non-U. S. bond index fund; the iShares Core U.S. Aggregate Bond ETF AGG, which invests only in U.S. Treasury and investment-grade corporate bonds; and the Schwab U.S. TIPS ETF SCHP, which invests only in U.S. Treasury bonds that are protected against inflation. All three have very low fees. Your columnist, who likes an easy life, prefers inflation-protected Treasury bonds.

The Vanguard Total World Bond ETF currently has an estimated yield - meaning estimated annual interest payments divided by the current price of the fund - of 4.23% using a standardized measure developed by the Securities and Exchange Commission. The iShares Core U.S. Aggregate Bond ETF has a yield by the same measure of 4.58%. The yield for TIPS bonds can't be known in advance because coupon payments will depend on inflation. But the U.S. Treasury reports that at the moment, the so-called "real" yield on TIPS bonds, meaning the interest rate you'll earn on top of inflation, is generous by historical standards, ranging between about 1.9% to 2.9%, depending on the length of the bond.

-Brett Arends

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July 15, 2026 12:16 ET (16:16 GMT)

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