BofA’s Hartnett Sees Pressure On Risk Assets If Bond Plan Fails
A failure in the US Treasury’s plan to tame long-term bond yields would pressure the dollar and spur short bets against riskier assets in the lead-up to November midterm elections, according to Bank of America Corp. strategist Michael Hartnett.
If Treasury Secretary Scott Bessent “can’t drag 30-year yield below 5%,” Hartnett said he foresees a dollar slump and increased short bets against leverage such as AI hyperscalers and private credit, among other risk assets, in the coming weeks. Financials also face the prospect of short selling if the plan doesn’t work, he said.
The proposal to increase buybacks of longer-dated bonds amounted to “quasi” quantitative easing, and was the latest in a succession of “Bessent puts,” to see off threats to US government and artificial intelligence financing, Hartnett and his team said. “Policy panic to ‘fix’ fixed income should cap but not reduce US bond yields,” he wrote.
Wednesday’s announcement by the Treasury followed 30-year yields reaching their highest in almost two decades, and 10-year rates getting to levels not seen since before President Donald Trump took office. Yields initially dropped, but reversed much of the move amid persistent concerns over surging US government debt. The 30-year yield was around 5.2% on Friday.
Bond market turmoil has also reverberated through stocks. The S&P 500 is down 1.9% since Monday and poised to snap a three-week gaining streak, as worries about bond volatility picked up.
For now, BofA’s bull-and-bear indicator still flashes an “extreme bull” reading, the strategists said. Funds focused on US stocks attracted almost $29 billion in the week through Aug. 19, the most in three weeks, they said, citing data from EPFR. Outflows from semiconductors, meanwhile, extended for a third week, bringing total redemptions to $6.3 billion.
This article was provided by Bloomberg News.
