Bank of America strategist Michael Hartnett suggests a Federal Reserve rate hike in October could stabilize long-term Treasury yields and support risk assets rather than damage markets. With the 10-year yield recently hitting 5.36% and the 30-year reaching levels unseen since 2002, Hartnett argues that proactive tightening may signal inflation control and reduce term premiums, whereas continued inaction could drive long-end yields higher.
EPFR data through last Wednesday shows global investors are shifting toward defensive positions, with $166.4 billion flowing into cash and $33.8 billion into bonds compared to only $12.4 billion into equities. Hartnett warns this divergence indicates underlying funding stress despite equity market resilience, noting that lower-rated bonds remain vulnerable if long-term rates continue rising without Fed intervention to anchor the bond market.
BofA: Fed October Rate Hike Could Stabilize Bonds and Support Risk Assets
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