Flows & Liquidity: An overhang of long duration and spread exposures

We find a rather bifurcated positioning picture in bonds with quant funds having benefitted over the past month from the build up of short duration exposures, while discretionary managers have been scrambling to contain previous overhangs of long duration and spread exposures. This raises two-way risk for bond markets going forward: either mean reversion signals start kicking in inducing quant funds to take profit thus helping to reverse some of the recent rise in bond yields, or discretionary managers amplify the current negative momentum by reducing their previous overhang of duration and spread exposures even further. Our bias is for the latter in the near term given the greater size of discretionary vs. quant bond managers. Some resumption of reserve diversification flows out of dollar reserves and into euro and gold in 2Q26. Institutional investors appear to be less optimistic on Brazilian equities than retail investors post the first round of the presidential election. While duri