Bank of America says commodity trading advisors (CTAs) and trend-following funds are shifting bets across currencies, equities, fixed income and energy markets as rising crude prices and geopolitical tensions begin to influence market behaviour.
According to the bank, these funds have been buying the U.S. dollar while trimming exposure to equities and U.S. Treasury futures. The moves have coincided with climbing yields and persistently elevated energy prices, which are reshaping relative attractiveness across asset classes.
Geopolitical risks tied to the Iran conflict and the jump in oil prices are starting to drag on broader risk appetite. Equity markets initially showed resilience to these pressures, but Bank of America notes that continued gains in energy prices have started to exert downward pressure on risk assets.
On equities, CTA positioning has largely flattened following recent market volatility. That leaves exposure close to neutral overall and slightly short in some instances. The bank flags that further declines in stock prices could prompt additional selling by these strategies in both U.S. and European markets.
In foreign exchange markets, the U.S. dollar has strengthened as the conflict intensified and inflation remained firm. This appreciation has driven trend-following funds to reduce holdings in certain major currencies, including the euro and the pound.
Within fixed income, CTAs have been unwinding long positions in U.S. Treasury futures as yields have edged higher. At the same time, they continue to build long positions in oil futures as crude prices rise amid concerns over supply.
Market implications
The changes in CTA positioning reflect how energy and geopolitical developments can reorient momentum strategies, tilting allocations toward perceived safe-haven currency exposure and commodity longs while cutting back on traditional risk assets and duration.
Limitations
Bank of America’s observations describe recent positioning trends among trend-following managers but do not specify the magnitude of flows or the identities of individual funds. The bank also links the moves to higher yields and elevated energy prices without offering a projection of future market moves.