Bank of America's Hartnett is fighting the flow and making a contrarian play on bonds
After a wild week for Treasury yields, Bank of America's Michael Hartnett is making a big contrarian call, telling clients to bet on battered long-duration U.S. government debt. In a trade he calls "Buy Humiliation, sell Hubris," the firm's chief investment strategist thinks the 30-year bond, yielding over 5% around levels not seen since late-2023 and the dot-com bust before that, is a "cyclical buy opportunity." Writing in his weekly report on where investor cash is moving, Hartnett noted that long bonds are in the "same humiliating place that stock returns were in Feb'09 (-3.4%, then worst rolling return from stocks since 1939) & commodity returns were in Jun'18." In both of those cases, and particularly for equities, they were great entry points that capitalized on downbeat investor sentiment. "Catalysts of [the] 2020s bond bear market [are] now very well-documented in 2025, very priced in, maybe not fully but very priced in," Hartnett wrote. Indeed, investors have soured on bonds based on multiple triggers: worries over tariff-induced inflation as President Donald Trump engages in a global trade war ; the fiscal mess in Washington, particularly following this week's House passage of the "big, beautiful" spending bill that is expected to push government debt and deficits still higher, and an accommodative Federal Reserve that cut interest rates a full percentage point in the latter part of 2024. The 30-year yield is up nearly a full percentage point since the Fed started cutting in September, with the rest of the curve following the path higher. US30Y 1Y line 30 year yield "We say this is perfectly sensible given 'all hat and no cattle' path of US tariff policy (note Trump's approval rating has also recovered its Liberation Day losses), the 'DOGE is out, tax cuts are in' Q2 pivot, investor need to hedge risk 'bubble & boom' policies pursued as politically easiest way to reduce debt as % GDP," Hartnett wrote. However, he said the 30-year bond yield above 5% is "a great entry-point because…'losing the long-end' (and the US dollar) not a winner… > 5% bond yields negative for today's highly 'financialized' US economy relative to Rest-of-World, and bond vigilantes incentivized to punish unambiguously unsustainable path of debt & deficit." Investors actually pushed money to bonds over the past week, with the asset class seeing $25 billion in inflows, according to Bank of America. Investment grade fixed income scored $13.5 billion of fresh cash, the most since the September turning point for yields, while high yield drew $1.9 billion in the past week.
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