In the coming days the U.S. national debt is set to breach $40 trillion for the first time.
Soberingly, Bank of America’s chief equity strategist, Michael Hartnett. predicts that the next milestone, $50 trillion, will be reached in July 2029. These worrying landmarks reinforce a market perception that fixed-income investments are losing bets, a sentiment Hartnett summarizes as “Anything But Bonds.”
It’s not a milestone so much, though, as a millstone. In his weekly “Flow Show” strategy note published Friday, Hartnett calculates that the cost of servicing the interest on that debt has reached $1.5 trillion yearly. Moreover, unless the yield on U.S. 5-year Treasurys falls to 3.25% or lower, that interest burden will continue rising.
Given the unpopularity of bonds, it “tracks,” Hartnett observes, that investors prefer to invest in stocks, especially buttressed by the notion that policymakers see explosive growth in nominal GDP as a solution to indebtedness (as the debt-to-GDP ratio improves). Investors also sense that equity markets are “too big to fail.” The upshot, as Hartnett points out, is that “Wall Street trades with no fear.”
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https://www.msn.com/en-us/money/economy/ar-AA2a79gF