Key insights
- A Bank of America survey indicates growing concern among fund managers about upside inflation risks in the US, increasing the likelihood of further Fed rate hikes. This shift is impacting bond market positioning and supporting the US dollar. While EM sentiment has rebounded, the potential for Fed tightening poses a risk to global markets.
Investing.com -- Institutional investors are growing increasingly concerned about upside inflation risks in the United States while pulling back from downside growth fears.
According to Bank of America’s global FX and Rates Sentiment Survey published on May 15, 2026, a resilient macroeconomic environment has officially brought the possibility of further Federal Reserve interest rate hikes back onto the market’s radar.
The monthly sentiment tracker, which surveyed 60 fund managers overseeing a combined $869 billion in assets, reveals a sharp shift in global risk positioning.
Bank of America’s analysts noted that "survey respondents are growing more nervous about upside inflation risks in the US, while appearing much less concerned about downside growth risks".
The changing landscape has upended previous consensus; 28% of fund managers now state that U.S. growth is well-priced but that the inflation upside remains significantly underpriced, doubling from the 14% recorded last month.
Concurrently, a quarter of surveyed investors view the Fed as the most likely major central bank to surprise the market with more rate hikes than currently priced. The mounting hawkish risks are directly altering bond market behavior.
The report highlights that "rising risks of Fed hikes help explain the waning conviction in ’long rates’ for the remainder of the year alongside the declining popularity of US steepeners". In foreign exchange, the data resilience is recognized as the primary near-term catalyst to fuel the next leg higher for the U.S. dollar.
Investor views on Euro area monetary policy remain highly nuanced as well. A 58% majority of fund managers view potential upcoming European Central Bank (ECB) rate hikes as a practical "risk management step to ensure price stability".
However, 31% of respondents explicitly characterize further ECB tightening as a clear "policy mistake". Meanwhile, emerging market sentiment rebounded in May from multi-year lows.
Fund managers moved to a neutral-to-overweight stance on emerging market debt, preferring local currency bonds. However, BofA strategists cautioned that worsening global geopolitical sentiment raises "concerns that the improved sentiment may have shaky foundations".
Finally, institutional capital is rotating heavily out of cash and into alternative allocations. "Long risk" has emerged as the market’s most crowded trade at 47%, followed immediately by "long commodities" at 22%.