Source: Fortune
Summary
Bank of America strategist Michael Hartnett warns that the US national debt, nearing $40 trillion, is causing investors to demand higher yields for long-duration Treasurys, making them less attractive. Hartnett’s “Anything but Bonds” framework suggests that investors should be wary of government debt due to large deficits and the need for higher yields to finance them. The yield on the 10-year Treasury has reached 4.6%, while the 30-year yield hit 5.2%, reflecting concerns over inflation, fiscal sustainability, and government borrowing.
Our Reading
The numbers tell one story. Bank of America’s Michael Hartnett is sounding the alarm on the national debt, which is expected to reach $50 trillion by 2029. The government’s need to continually refinance and issue more debt is creating a larger supply of bonds that investors are becoming less willing to buy at existing yields. Hartnett expects investors to demand higher interest rates to compensate for fiscal and inflation risks. The Treasury market is already reflecting these concerns, with yields on long-duration Treasurys rising.
The strategy enters a familiar phase. Hartnett is looking beyond traditional fixed-income investments, suggesting that assets like gold and equities may be more attractive. The interest bill on the national debt has climbed to roughly $1.4 trillion over the past year, creating a feedback loop of more debt and larger deficits.
The announcement sounds familiar. As the national debt nears $40 trillion, investors are becoming increasingly wary of government debt. Hartnett’s warning is not new, but the scale of the debt is. The Treasury must issue even more securities to make up for the borrowing, creating a massive feedback loop.
One sentence that reframes the situation: The US government is essentially crowdfunding its own debt, with investors demanding higher yields to compensate for the risk of lending to a borrower with a rapidly growing debt burden.
Author: Evan Null
