Insights 
VT 
The latest BofA Global Fund Manager survey reveals that “long gold” remains the most crowded trade for the third consecutive month. Gold’s current popularity is due to concerns over stagflation and geopolitical happenings. The subsequent crowded trades are “long Mag 7” and “short US dollar.”
The position of “short US dollar” should raise eyebrows among traders, as the dollar has remained steady around its April levels against major currencies. Viewing the market chart suggests caution for those considering short positions without strong justification.
Biggest Tail Risks For Fund Managers
Survey findings also shed light on the biggest tail risks for fund managers. The risk of a “trade war triggering a global recession” lessened in June’s survey, reflecting recent market trends. Meanwhile, concerns about “inflation causing the Fed to hike” and “credit event driven by a rise in bond yields” have grown.
Both risks are closely linked to the Federal Reserve’s policy moves. Furthermore, the next considerable macro risk could involve inflation or issues with Trump’s tax bill, warranting close monitoring of these developments.
This survey paints a clear picture of sentiment among fund managers, revealing where capital is clustering and how risks are being weighed. The fact that gold has remained the go-to position three months in a row highlights how much emphasis is being placed on hedges against inflation and geopolitical uncertainty. Many see gold less as a traditional commodity and more as a safety net when both monetary policy and international affairs grow uneasy.
The persistence of “long Mag 7” near the top suggests traders continue to lean heavily into large-cap technology shares, perhaps underestimating the reduced momentum in parts of the sector. With valuations stretched again and less breathing room from interest rate expectations, we ought to question whether some portfolios are becoming too reliant on the same kind of growth profile.
The positioning against the dollar is harder to square. Dollar shorts have stuck despite no material weakening in the greenback. In actual terms, the DXY has hovered with minimal deviation, holding a range that defies the pessimism priced in. The logic behind betting against it, unless tied to strong anti-cyclical bets on certain crossings like yen or euro, doesn’t hold up when you match sentiment with market performance. Without a hard shift in US macro data or surprise dovishness, staying short the dollar lacks conviction.
Then there’s the shift in perceived tail risks. Fears of an outright trade war and catastrophic demand slowdown are no longer dominant, perhaps because no single event currently captures the world’s anxiety like tariffs did in previous cycles. Instead, eyes have shifted sharply towards inflation and credit strain—the former because any uptick could nudge the Federal Reserve back toward more restrictive footing, the latter because rising yields amplify financing pressure, particularly among weaker corporates.
Higher Borrowing Costs And Inflation
Higher borrowing costs and stickier-than-expected inflation both point to a reduced safety margin. It’s not just about yields moving; it’s about where debt rollovers begin to pinch. That has clear implications for equity volatility and credit spread behaviour, especially across high-yield issuers.
Powell’s positioning makes this more than academic. While markets crave confirmatory language around cuts, even slight hesitations in speech or redirection on wage growth or services inflation could upset assumptions. And the budget trajectory under the previous tax policy continues to hover—spending patterns under that legislation could easily re-emerge as a concern if fiscal paths stop aligning with monetary goals.
We are watching data inputs more carefully. Core price metrics, labour strength, and second-tier inflation series like trimmed mean or sticky CPI could again swing thinking. Fresh fiscal announcements—or merely the hint of tax episodes reappearing in 2025 discussion—would bring renewed attention to funding balances and potential rating sensitivity.
For those who derive strategy from shorter-term dislocations, these risks may appear less immediate. But volatility sellers, rate traders, and spread strategies all require a reassessment of how far expectations can deviate from pricing. We should begin stress testing around two axes: inflation undershoots that keep policy frozen longer than is being bet, and persistent inflation that forces the hand of central banks—even as recession odds creep higher.
This isn’t a two-week story. It’s about what assumptions are too priced-in by quarter-end. A cooling of tightening fears? Perhaps. But how real is that already in swap curves and front-end futures? And have equity volatilities really adjusted to match?
Time to reevaluate duration sensitivity and tighten exit plans from crowded ideas. There’s nothing new about heavy positioning in safe assets during uncertainty. But what is new is the narrowness of conviction. We’re reaching a spot where small surprises carry outsize reactions.
