A failure by U.S. Treasury Secretary Scott Bessent to push 30-year Treasury yields below 5% would weaken the dollar and trigger increased short-selling of leveraged risk assets, including AI-related equities, private credit and financial stocks, Bank of America warned on Friday.
The warning from BofA strategist Michael Hartnett follows Bessent’s proposal to accelerate purchases of longer-dated Treasuries, an approach Hartnett described as akin to quantitative easing. The plan is the latest in a series of measures Bessent has taken to stabilize U.S. bond markets, which Hartnett termed ‘Bessent Puts’ intended to mitigate risks to government financing and artificial intelligence funding.
Bessent’s announcement on Wednesday came after 30-year Treasury yields surged to their highest level in nearly two decades, while 10-year yields approached levels last seen before President Donald Trump took office. Although yields initially declined in response to the plan, they largely retraced those gains amid persistent concerns over the rapid expansion of U.S. government debt. As of Friday, 30-year Treasuries yielded about 5.2%.
The turmoil in the bond market has spilled over into equities, with the S&P 500 declining 1.9% since Monday, ending a three-week streak of gains driven by growing anxiety over bond-market volatility. Despite the recent pullback, the BofA Bull & Bear Indicator remains in ‘extreme optimism’ territory, while U.S.-focused equity funds recorded inflows of nearly $29 billion in the week to August 19—the highest since mid-July, according to EPFR data. Semiconductor stocks, however, continued their three-week streak of outflows, with $6.3 billion in withdrawals.
Hartnett cautioned that while political efforts to ‘fix’ fixed-income markets may limit further rises in yields, they are unlikely to drive a sustained decline below 5% for 30-year Treasuries.
