US national debt is heading full steam toward $40 trillion, a fact that makes the "Anything but Bonds" strategy of Bank of America Research strategist Michael Hartnett increasingly timely. In simple terms, Hartnett warns that the US is accumulating an excessively large debt, which forces the government to issue ever more bonds. Investors, in order to assume the rising fiscal risk, demand higher compensation, making long-term US Treasuries less attractive compared to other asset classes.
US debt reaches $39.9 trillion
The US national debt stands at approximately $39.9 trillion in mid-August and is expected to cross the $40 trillion threshold even within the current week. According to official data from the US Department of the Treasury, the government's total debt includes both obligations held by state entities and debt held by private individuals and investors. Michael Hartnett, chief investment strategist at Bank of America, has turned this fiscal deterioration into one of the core pillars of his investment strategy. His "Anything but Bonds" stance reflects his assessment that investors should be particularly cautious toward long-term government bonds, as long as the US continues to post large budget deficits and markets demand higher yields to fund US debt. Hartnett estimates that US national debt could reach $50 trillion by 2029.
The problem is not just the level of debt
The primary concern is not simply the fact that the US government owes vast sums of money. The critical issue is that the government must constantly refinance existing debt and issue new bonds. This creates an ever-larger supply of treasuries, which must be absorbed by investors. If investors appear less willing to buy US debt at current yields, then the US Treasury will have to offer higher interest rates in order to attract buyers. This creates a vicious cycle: more debt, more bond issuances, higher yields, and ultimately even higher debt service costs.
10-year yield at 4.6% – 30-year at 5.2%
This dynamic is already visible in the US Treasury market. The yield on the 10-year US bond reached 4.6%, while the yield on the 30-year bond touched 5.2%. High yields reflect investor concerns about inflation, fiscal sustainability, and the massive volume of new government borrowing. For bond investors, however, rising yields are a double-edged sword. New bonds become more attractive as they offer higher income. At the same time, existing bonds lose value when market yields rise. The longer the duration of a bond, the more sensitive its price typically is to interest rate changes. This makes long-term US Treasuries particularly vulnerable if investors continue demanding higher yields to offset fiscal and inflationary risks.
Bonds as a "thermometer" of the US economy
Although, according to the Bank of America strategist, bonds are not currently the most attractive investment choice, the government debt market remains one of the clearest indicators of the underlying state of the economy. US Treasury yields capture investor expectations regarding inflation, economic growth, interest rates, as well as the government's ability to manage its public finances. When yields rise, the impact extends far beyond bond portfolios. Yields on US Treasuries serve as a benchmark for borrowing costs across the entire economy. As a result, higher yields can translate into more expensive mortgages, higher corporate borrowing costs, and costlier consumer credit, potentially weighing on investment, the housing market, and consumption.
$1.8 trillion in new borrowing in 10 months
The scale of the problem is also reflected in new borrowing. The US federal government has borrowed approximately $1.8 trillion during the first 10 months of fiscal year 2026, of which $432 billion was borrowed in July alone. New borrowing creates a vicious cycle. More debt means higher interest payments, while increased interest payments can lead to even larger budget deficits. Ultimately, the US Treasury is forced to issue even more securities to cover its financing needs. And the scale is already immense.
Annual interest cost at $1.4 trillion
According to Hartnett's latest analysis, the cost of serving interest on US public debt has risen to approximately $1.4 trillion over the past year. He argues that the "Anything but Bonds" strategy is not expected to end until the yield on the 5-year US Treasury drops below roughly 3.25%. This estimate explains why Hartnett is looking beyond traditional fixed income investments. In his view, the risk-reward relationship has shifted significantly, and investors should consider alternative asset classes, such as gold and equities, as well as more specialized sectors like biotechnology and real estate.
"This is the reality"
Hartnett highlights the paradoxical picture that has developed in the markets: at the same time that yields on US Treasuries stand at exceptionally high levels, the US stock market is hitting record highs. "The US stock market reached an all-time high on the same day that US government bonds were issued with the highest yield in 25 years," Hartnett noted in his report. "This is the reality." Bank of America's warning, therefore, is not just about the bond market; it addresses a broader risk: as US debt swells, greater pressure is exerted on yields, interest rates, and ultimately the funding costs of the entire US economy.
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