Bank of America strategist Michael Hartnett warns investors to favor assets other than long-duration bonds as U.S. national debt nears $40 trillion.
Bank of America chief investment strategist Michael Hartnett warns that investors should be wary of long-duration government debt as the U.S. national debt approaches the $40 trillion mark. Hartnett argues that the massive accumulation of debt causes the government to issue an excessive supply of bonds, forcing the market to demand higher yields to compensate for fiscal risks. This dynamic is already evident in the Treasury market, with the 10-year yield reaching 4.6% and the 30-year yield hitting 5.2%. While new bonds offer higher income, existing long-duration bonds lose value as yields rise. Hartnett suggests that the 'Anything but Bonds' trade will likely persist until five-year Treasury yields fall below 3.25%. In the meantime, he recommends looking toward other assets such as gold, equities, and real estate to balance the risk-reward profile of the economy.