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A fresh round of US policy support aimed at containing long-term Treasury yields is likely to prevent a further sharp rise in borrowing costs, but may not be enough to drive yields materially lower, according to BofA Securities said in a research report.
The brokerage warned that if policymakers fail to pull the 30-year Treasury yield below the critical 5 per cent level, markets could face a weaker US dollar and a shift away from leveraged risk assets, including AI stocks, private credit and cyclical financials. BofA said the US administration is increasingly focused on preventing a rise in long-term borrowing costs from undermining government financing and the artificial intelligence investment boom. The US Treasury has doubled the size of its long-end bond buybacks, following earlier measures including dollar swap lines with Asian and Gulf economies and intervention to support the yen. The brokerage described these steps as a growing policy effort to "fix" the fixed-income market, arguing that they should cap, but not necessarily reduce, US bond yields. The US national debt has crossed USD 40 trillion, while net Treasury issuance is expected at around USD 2 trillion across 2026 and 2027. At the same time, corporate bond issuance is rising as companies finance the AI investment cycle. BofA noted that the administration remains 0-for-3 on its stated economic objectives of 3 per cent GDP growth, a 3 per cent budget deficit as a share of GDP and an increase of 3 million barrels per day in US oil production. GDP growth has remained below 2 per cent for the past six quarters, the budget deficit is around 6 per cent of GDP and oil output has risen only about 0.3 million bpd since 2024. The investment bank also highlighted growing signs of investor optimism. Its Bull & Bear Indicator rose to 9.5 from 9.3, entering an "extreme bull" territory, while weekly flows showed USD 40.1 billion moving into equities and USD 21.4 billion into bonds. US equities attracted USD 28.9 billion, the largest inflow in three weeks. BofA continued to favour gold, while recommending contrarian exposure to long-duration REITs, regional banks, small-cap stocks and Hong Kong property. Gold has gained around 4 per cent year-to-date, compared with a 13.9 per cent rise in global stocks, while bitcoin has fallen 16.9 per cent. However, BofA cautioned that if fresh monetary and fiscal support fails to contain long-term yields, the resulting policy credibility shock could trigger a US dollar slump and broader risk-off positioning, particularly ahead of the US midterm elections. (ANI)
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