Bank of America's chief strategist Michael Hartnett warned that a specific threshold in the bond market could act as a turning point for global asset classes if it were to be breached.
In his weekly Flow Show report, Hartnett described a policy-led self-reinforcing cycle he calls the "boom loop." Under this framework, policymakers respond to headwinds such as deglobalization, inequality and populism with substantially higher government spending - spending that Hartnett says has already risen 60% since 2020 and is pencilled to rise a further 15% in the proposed fiscal 2027 budget. That fiscal impulse has coincided with a sharp expansion in nominal U.S. output.
Hartnett pointed to a U.S. nominal GDP increase of 75% over seven years, growing from $20 trillion at the COVID trough in 2020 to a projected $35 trillion by 2027. He argued that this kind of nominal boom tends to be supportive of stocks and commodities but less favourable for bonds and the dollar. As he put it: "Stocks & commodities love nominal booms; bonds (steeper curve) & U.S. dollar not so much."
At the centre of Hartnett's concern is the 5% yield level on the 30-year U.S. Treasury - a level he dubs the "Maginot Line." He suggested that the administration is working to sustain demand for Treasuries while facing political pressure to reverse what he describes as the "deflation" of Trump's inflation approval, which Hartnett notes is currently at 29%, only a percentage point above President Biden's all-time low of 28%.
Hartnett warned that a decisive break above the 5% mark could have historical precedents that mark the end of booms: Japanese government bond yields surged 230 basis points in 1989, U.S. Treasuries jumped 260 basis points in 1999, and China saw yields rise 150 basis points in 2007. "Should 5% Maginot Line break badly (booms/bubbles always end with sharp jump in yields), then the door to doom starts to open," he wrote.
Against that backdrop, Hartnett continues to favour exposures he groups as "the Cs" - commodities, chips, consumers and China - while expecting steeper yield curves for bonds and persistent pressure on the U.S. dollar.
Recent asset flows underline the rotation across markets. Over the past week, equity funds attracted $23 billion while bond funds took in $19.9 billion - marking the 53rd consecutive week of inflows into bonds. Cash allocations declined by $29.5 billion, and gold posted its first weekly outflow in six weeks, at $1.2 billion.
Regional and sector flows were uneven. Japan equity funds recorded a $6.7 billion inflow, the largest weekly intake since May 2013. By contrast, China equity funds experienced an $11.3 billion outflow, the biggest since January 2026. U.S. equities drew $19.3 billion in the week, their fifth straight week of inflows, concentrated mainly in large-cap stocks.
Within fixed income, investment-grade bonds attracted $8.8 billion - their largest weekly inflow in eight weeks - and emerging market debt recorded a third consecutive week of inflows, taking in $3.6 billion.
Bank of America's proprietary Bull & Bear Indicator moved slightly higher to 6.6 from 6.3. Hartnett attributed the uptick to tighter high-yield and AT1 spreads, inflows into technology, and more bullish positioning in gold and the VIX, but he noted the overall signal remains neutral.
Hartnett's analysis frames a market environment driven by heavy fiscal support and rapidly expanding nominal GDP, with clear winners and losers should yields cross critical thresholds. The 5% 30-year yield remains the focal point for downside risk to the boom narrative.