(Bloomberg) -- Investors should buy the selloff in long-dated Treasuries as the government is likely to heed warnings from bond vigilantes to bring its debt under control, according to Bank of America Corp.’s Michael Hartnett.
The 30-year Treasury note is at a “great entry point” with the yield above 5%, the strategist wrote. Bond investors are “incentivized to punish the unambiguously unsustainable path of debt and deficit,” he added.
US bond yields have surged this week as President Donald Trump’s tax cut plan has ignited concerns that it would add trillions of dollars in coming years to already bulging budget deficits, at a time when investor appetite is waning for US assets across the globe. Sentiment toward Treasuries has also taken a hit since Moody’s Ratings stripped the US of its top credit grade late last week.
The 30-year yield rose to as high as 5.15% on Thursday, just shy of a two-decade high. Long-dated bonds in Japan, Germany, Australia and the UK have also been under pressure, while US equities and the dollar have retreated.
Hartnett has recommended bonds over equities this year. The strategist said in the note dated Thursday that Treasuries are now reflecting the drivers of a bear market, with 10-year annualized returns from long-term government bonds falling to a record low of -1.3% in January.
--With assistance from Michael Msika.