Bank of America chief: US debt is approaching 40 trillion US dollars. Going long on gold is the best solution right now. AI bonds have become an counterintuitive target for shorting
Comparing the news, Bank of America's chief investment strategist Michael Hartnett identified the upcoming US Treasury bond breaking through $40 trillion as the core narrative line of the current market, and expressed his views on the topic of worries beginning at 40. Interest expenses on US debt have reached 1.4 trillion US dollars in the past 12 months, and are about to surpass social security as the federal government's largest single expense, while the 30-year US bond issue hit a 25-year high with a yield of 5.126% last week.
Hartnett pointed out that unless the 5-year US Treasury yield falls below 3.25%, the worsening trend in interest spending will not be reversed, and it is almost impossible for this to happen without a major deflationary shock or recession. He summed up the absurdity of reality in one sentence: US stocks hit a record high on the same day, and US bonds were issued at the highest yield in 25 years on the same day. Under an asset allocation framework that is far from bonds, away from the US dollar, and fully encumbered AI, Hartnett clearly listed going long on gold as the best solution to combat the depreciation of the US dollar, the collapse of bonds, and asset inflation. At the same time, a counterintuitive transaction was presented — shorting AI bonds. The logic is that capital expenditure of more than 1 trillion US dollars is compounded by negative free cash flow. AI companies must continue to issue bonds on a large scale for financing. This transaction will be much more profitable than going long on AI stocks.
Data from Nomura Strategist confirms the pressure on the bond market: AI and data center related bond issuance has reached about 12 times the average annual level in 2015-2024, and $269 billion since the beginning of the year, which is double the full year of 2025. The positive structural influx of corporate bonds pushes the yield curve on US bonds and crowds out buyers of long-term treasury bonds. Hartnett also noticed that long-standing cold assets such as REITs, biotech, regional banks, and small-cap stocks are quietly outperforming, and the market is peaking in pricing yields. Key future market points include the Federal Reserve Chairman's speech in Jackson Hole on August 28, the September FOMC meeting, and the Bank of Japan meeting.
The final judgment is that if the Republican Party holds the Senate and the Texas governor, the stock market, especially the AI sector, will rise further to the level of bubble in 2027; if the Democratic Party wins on November 3, the stock market, dollar, and bond yields will face a sharp drop of more than 10% before the end of the year.
