Untouchables to rally

We have just seen the largest weekly bond outflow ($10.3bn) in two years, according to Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch Global Research.

The sell-off in bonds has been mirrored by a $10.8bn inflow to equity funds, which Hartnett points out is the fourth biggest bond-to-equity rotation in six years.

Hartnett believes the net effect is that “risk has been reset big time” and that the “untouchables” (assets such as emerging markets, small cap, industrial metals, high yield, and all the “unloved, oversold stuff”) should correct in the short-time.