A higher interest rate environment has made fixed income exciting – and Bank of America has a couple of stock plays on the theme. The Federal Reserve’s series of 10 rate hikes has boosted yields on Treasurys and money market funds. Online banks have also sweetened the rates they pay on certificates of deposit and high-yield savings accounts. Investors have also been pouring money into bond funds, which globally posted inflows of $145 billion in the first quarter of 2023, following outflows of $123 billion in the fourth quarter of 2022, according to data from the Investment Company Institute . Bank of America analyst Craig Siegenthaler says fixed income reallocation will continue to be a theme, and that could lift the shares of certain asset managers and brokers. “We believe [ BlackRock and Tradeweb ] are the two best ways to invest in fixed income with both retirees and pension plans raising allocations to traditional fixed income over the next 12 months,” he said in a Tuesday report. He added that investors should “expect sizable flows into fixed income, money markets and private credit over the next 12 months and look for bond trading volumes to increase.” The analyst also expects cash sorting – that is, investors moving cash from sweep accounts into other options that offer higher yields – to decelerate overall but remain elevated over the next twelve months. This could limit deposit growth for brokerages in the second half, Siegenthaler said. Sweep accounts, which is where people keep money that’s waiting to be invested, generally offer low rates. LPL Financial , for instance, offers a rate of 0.45% on its insured cash account for investors whose household value ranges from $300,000 to $500,000. Finally, he noted that Fed rate cuts, which the markets could be expecting in 2024, could be a negative catalyst for brokers that are especially sensitive to rates. – CNBC’s Michael Bloom contributed to this story.
