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BofA says pension fund quarter-end rebalancing for June is expected to drive material outflows from equities into fixed income

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BofA says pension fund quarter-end rebalancing for June is expected to drive material outflows from equities into fixed income

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  • Pension fund quarter-end rebalancing for June is expected to drive material outflows from equities into fixed income, as the S&P 500's quarterly gain of approximately 14.8% outperformed 10yr+ Treasuries (around 0.4%) and corporates (around 1.0%), despite a marginal month-to-date tilt favouring equities, BofA says. 
  • The bank writes that assuming roughly a third of the April and May rebalance occurred at each month-end, expected flows include approximately USD 52bln out of equities (a 1.7 standard-deviation rebalance), USD 15bln into Treasuries, USD 27bln into corporates, and USD 8bln out of agency and GSE-backed securities. 
  • Beyond passive rebalancing, structural demand for duration from pension funds is expected to persist as funded ratios remain above 100%, with a potential cycle turn possibly accelerating this trend, its analysts say.

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