economy
With the national debt nearing $40 trillion, Bank of America has a warning for bond investors
The U.S. national debt is hurtling toward $40 trillion, and Bank of America Research strategist Michael Hartnett’s “Anything but Bonds” framework is becoming ever more applicable. Boiled down, Hartnett warns the U.S. is accumulating too much debt, which causes the government to issue too many bonds. Investors want compensation for the fiscal risk, making long-duration Treasuries unattractive compared to other assets. Here’s why the climbing debt makes the advice worth a listen.
TL;DR
- The U.S. national debt is nearing $40 trillion and is expected to cross this threshold soon.
- Bank of America strategist Michael Hartnett advises an "Anything but Bonds" approach due to fiscal risks.
- High debt levels lead to increased bond issuance, potentially requiring higher yields to attract investors.
- Elevated Treasury yields (10-year at 4.6%, 30-year at 5.2%) reflect concerns about inflation and fiscal sustainability.
- Rising yields devalue existing bonds, especially long-duration ones, making them vulnerable.
- Higher Treasury yields can increase borrowing costs for mortgages, corporate loans, and consumer credit.
- Interest payments on the national debt have reached approximately $1.4 trillion annually.
- Hartnett suggests assets like gold, equities, biotech, and real estate as alternatives to bonds.
- The "Anything but Bonds" strategy is expected to persist until five-year Treasury yields fall below 3.25%.