Short-term bond funds, such as those run by Vanguard, are paying 4% or more right now and entail relatively little inflation or interest-rate risk.

And if Tuesday’s news from Wall Street is any guide, they may turn out to be a smart buy.

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It’s a ‘black swan’ moment in oil but nowhere else. The stock market is at risk of a 20% fall, say these strategists.

That at least is the take from Bank of America’s latest global fund-manager survey, where BofA Securities polled hundreds of the top investment managers around the world running more than half a trillion dollars in institutional money.

As regular readers know, this survey is important mostly because it tells us what the big money has already been buying. Or, to put it more simply, it reveals what’s already in a buyer’s market, because the big money managers have been selling, and what’s in a seller’s market, because they’ve been buying.

Three important and potentially useful things leap out of the latest survey, which was conducted between March 6 and 12, and therefore well into the U.S. conflict with Iran.

The first is that fund managers are surprisingly — some might say alarmingly — complacent about the stock market. According to BofA data, managers remain heavily overinvested in stocks worldwide — especially emerging markets, which tend to be the most volatile, and Japan JP:NIK, which is highly exposed to a global energy crisis because it has to import so much oil.

This raises the question of whether the risks and implications of the crisis in the Persian Gulf are fully reflected in stock prices.

(The heavy weighting in stocks is especially surprising, as fund managers also told the pollsters that they have slashed their economic-growth expectations and are worrying much more about inflation.)

The second point is that fund managers report that they are now heavily overinvested in commodities. Actually, their overall commodity exposure is now the highest since the oil spike in early 2022, shortly after the Russian invasion of Ukraine.

That means oil CL00 BRN00 at $100 a barrel may already be in a seller’s market. Buying near-term oil futures certainly entails plenty of risk, even if fund managers also told the poll that they expect oil to fall back to around $76 by year-end. (Incidentally, almost none of them think oil is going to stay above $100). It suggests gold GC00, above $5,000 an ounce, may also be in a seller’s market.

But the third point, and possibly the most useful for retirees (and others), is that fund managers are heavily underinvested in bonds. Actually, bonds — classically seen as low risk — are right now the asset class by far the most underowned by global fund managers.

This is something of a puzzle. The worry about inflation is one good reason: Rising inflation makes the fixed-income payments from bonds less valuable in real, purchasing-power terms. And as fund managers fear the Federal Reserve will keep short-term interest rates on hold, and may even raise them to fight inflation, they may also be hoping to get higher interest rates ahead.

But for all that, the survey shows concerns about global growth. It also shows widespread concern about the artificial-intelligence boom (or bubble), and other issues such as private credit. All of these would normally be reasons to seek out safety in bonds, rather than shunning them.

Not all bonds are made alike. Those issued by the U.S. government and blue-chip, investment-grade corporations — as well as tax-free municipals — typically have the lowest risk of default. And those due to mature within a few years face the lowest risk from inflation and a rise in short-term interest rates.

Your columnist sounds like a broken record talking about the comparative merits of inflation-protected Treasury bonds, known as TIPS. But it is intriguing here that you can get better than 4% interest even on regular short-term, low-risk Treasury and investment-grade bonds. That’s true from individual bonds but also from, say, Vanguard’s actively managed Short Duration Bond ETF VSDB, which charges 0.15% a year in fees and reports a 4.24% yield. (The bonds in the fund typically mature in around three years.)

It’s often a good idea to invest in an asset class simply because fund managers are underinvested in it. (This is the rationale behind this column’s occasional Pariah Capital feature.) But that’s not the only reason bonds may do better than expected here.

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If the crisis in the Gulf persists then, yes, high oil prices will lead to high inflation — initially. But they will quickly become a tax on growth. (It’s interesting to wonder what $100 oil will mean for the artificial-intelligence complex, given the enormous energy demands of AI computers).

It is almost impossible to imagine this crisis persisting without it threatening the global economy, while also making investors more risk averse. All of which would stimulate demand for, yes, bonds.

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