Who outperforms when the yield curve steepens?

Investing.com -- According to a note from Bank of America on Thursday, certain sectors and regions tend to outperform when the yield curve steepens, providing valuable insights for investors looking to navigate the current market environment.

BofA's quantitative strategy team highlighted in its European snapshot note that over the past 24 months, 14 of those months saw a steepening of the yield curve.

Meanwhile, of those, 11 months experienced "bear steepening," and three saw "bull steepening."

BofA analysts expect further steepening. The bank analyzed historical performance data to identify sectors that consistently show positive returns during these periods.

During bull steepening, Healthcare, Switzerland, and Rising vs. Falling Momentum stocks have typically outperformed, BofA reported.

In contrast, they said Basic Resources, Norway, and High vs. Low Risk stocks tend to lead during bear steepening.

BofA also pointed out that recent market activity shows large outflows from UK-focused funds, which experienced their largest outflow in 15 weeks, totaling $1 billion.

Switzerland, on the other hand, recorded significant inflows of $740 million, as did Healthcare with $60 million. Meanwhile, Financials and Risk stocks posted some of the largest outflows last week, according to the bank.

In terms of performance across styles in September, High vs. Low Growth stocks have posted a 6.5% gain, while Rising vs. Falling Momentum outperformed in 15 out of 20 sectors across all eight major European countries, according to BofA.

For investors, sectors like Healthcare and countries like Switzerland could offer potential upside as the yield curve steepens further, BofA analysts suggest. The bank notes tha the ongoing steepening is likely to impact sectors differently depending on whether it occurs in a bear or bull market scenario.

Source: Investing.com