Big funds bet the 'anything but bonds' trade is poised to end

Big US bond investors have been aggressively shifting money into long-dated notes, betting that the unloved asset class will be one of the winners from eventual interest rate cuts. The largest 20 mutual fund managers in the US have increased duration over the past two months as yields climbed, according to research by JPMorgan Chase. Investors have been building positions by "piling into" high-grade corporate bonds to avoid the negative carry of government debt, said Nikolaos Panigirtzoglou, a global market strategist at the lender.

Long-dated corporate bonds are winning back investors who fled as the market dialed back bets on imminent easing by the Federal Reserve. Now, the allure is returning as markets price in two rate cuts this year after data showed US inflation ebbing for the first time in six months.

"History shows pretty consistently that yields rally hard starting three to four months before the Fed actually starts cutting," said Gershon Distenfeld at AllianceBernstein Holding, who recently extended duration in the $23 billion American Income Portfolio he manages. That could happen "a month or two from now, six months from now, or not until 2025," he said.