Bank of America chief equity strategist Michael Hartnett maintains his "Anything but Bonds" stance, advising investors to avoid bonds due to the burgeoning U.S. national debt, which is nearing $40 trillion and is projected to reach $50 trillion by 2029. Hartnett argues that the government's need to issue an excessive number of bonds to finance this debt will necessitate investors demanding higher compensation for fiscal risk, making long-duration Treasuries unattractive compared to other investment opportunities.
Hartnett highlights that interest payments on the national debt have totaled $1.4 trillion over the last year, and this figure is set to increase unless five-year Treasury yields drop below 3.25%. He also notes a disconnect where equity markets are reaching record highs even as 30-year bond yields are at levels not seen in a quarter-century, and deficits widen. The U.S. government posted a record July deficit of $432.3 billion, with total outlays reaching $766 billion, a 22% increase from the prior year. Net interest payments alone accounted for $104 billion of July's outlays.
For the first 10 months of fiscal 2026, net interest payments amounted to $931 billion, and the cumulative deficit reached $1.799 trillion, already surpassing the full fiscal 2025 shortfall of $1.775 trillion. This deteriorating fiscal picture, coupled with substantial tariff refunds following a Supreme Court ruling, which pushed customs duties into negative territory for the third consecutive month in July (with approximately $100 billion in refunds processed), further exacerbates the debt situation. Hartnett's broader investment framework for the decade also includes "Anywhere but China," "Anything But the Dollar," and an "all-in on AI" approach.
Meanwhile, efforts by Treasury Secretary Scott Bessent to calm the bond market have seen mixed results. Despite the Treasury announcing it would double the size of its bond buyback program to $4 billion per operation starting next month to reduce the supply of longer-term bonds, the yield on the 10-year Treasury note rebounded to 4.69%. Investors and analysts have warned that unpredictable debt management moves, such as the surprise buyback boost, could increase term premium on U.S. government debt, demanding extra compensation for potential risks. This uncertainty adds another layer of complexity for the Federal Reserve as it deliberates on interest rate decisions.
