US Debt Approaches $40 Trillion
As the U.S. national debt approaches $40 trillion, Michael Hartnett, Chief Investment Strategist at Bank of America Research, argues that his well-known “Anything but Bonds” strategy is gaining increasing relevance day by day.
In short, Hartnett warns that the United States continues to accumulate massive levels of debt, forcing the government to issue growing quantities of bonds. In response, investors demand higher yields to compensate for rising financial risks, making long-term Treasury bonds less attractive compared to other asset classes, according to a report published by Fortune and reviewed by Arabiyya Business.
The U.S. national debt reached approximately $39.9 trillion in mid-August and is expected to surpass the $40 trillion threshold within days.
Hartnett has made this financial deterioration a central pillar of his investment outlook. His “Anything but Bonds” call reflects his conviction that investors should exercise caution regarding long-term government bonds, given the United States’ continued large fiscal deficits and the need to offer higher yields to attract buyers.
According to Hartnett, the problem is not the debt size itself, but the government’s ongoing need to refinance existing debt and issue more bonds. As the supply of bonds in the market increases, there is a greater need for investors capable of absorbing this supply. If investors become less willing to buy these bonds at current yield levels, the government will be forced to raise interest rates to attract them.
This dynamic is already evident in the U.S. bond market. The yield on 10-year Treasury bonds has risen to 4.6%, while the yield on 30-year bonds has reached 5.2%. These elevated levels reflect investor concerns about inflation, the sustainability of the government’s fiscal position, and the growing scale of government borrowing.
Although Hartnett does not view bonds as an attractive investment option at present, he notes that the bond market remains one of the clearest indicators of the true state of the economy. Treasury yields reflect investors’ expectations regarding inflation, economic growth, interest rates, and the government’s ability to manage its finances.
When yields rise, the impact extends beyond bond portfolios. Treasury yields serve as the benchmark for borrowing costs across the economy. Higher yields typically increase the cost of mortgages, corporate loans, and consumer credit, which can negatively affect investment, real estate activity, and consumer spending.
According to Hartnett, the rationale for the “Anything but Bonds” strategy will only lose its validity if the yield on 5-year Treasury bonds falls below approximately 3.25%. For this reason, he is looking toward alternatives beyond traditional fixed-income investments, considering that the risk-return equation has fundamentally changed.
He points to assets such as gold, equities, and investment opportunities in sectors like biotechnology and real estate. He concluded his report by stating, “The U.S. stock market set a new record high on the same day the U.S. Treasury Department issued bonds with the highest yield in 25 years. This is the reality we live in today.”
