MW Why Bank of America says 30-year Treasurys are the best hedge for investors

By Jules Rimmer

Bank of America strategist says the Fed might be done easing

Bank of America's strategist holds that the long bond is still the best hedge on risk assets for 2026 and the Fed may be done easing

A Bank of America strategist said the U.S. government won't let the long bond yield more than 5%, so it's the best hedge when markets are in a so-called risk-off mood that they are now experiencing.

The chief investment strategist for Bank of America Securities, Michael Hartnett, made his contrarian call on the long bond when the yield was hovering around 5% last summer. Despite flirting with that level on a few occasions, the crucial 5% mark has held for the 30-year Treasury BX:TMUBMUSD30Y, which was yielding 4.71% on Friday.

Hartnett's latest views were published in weekly "Flow Show" note, published Friday in between the strong payrolls data Wednesday but before the relatively benign consumer price index for January was released.

Hartnett raises the possibility that the Fed might actually already be done easing which would imply the trend of U.S. yield curve steepening -whereby interest rates rise faster at the longer end of the curve than the short BX:TMUBMUSD02Y - is also complete.

If the White House continues its electioneering by targeting inflation and AI disruption turns out to be a deflationary vector, then Hartnett argues government bond yields could surprise to the downside in 2026.

On that note, he highlights the zero-coupon Treasury exchange-traded fund ZROZ, designed to amplify returns from downward moves in interest rates, has gained 4% so far in 2026, comfortably outpacing the S&P 500 index SPX.

The idea the Fed is done cutting rates would certainly run counter to prevailing wisdom in the market and could have a significant impact on recently in-demand assets like gold (GC00) and silver (SI00) that have been bought partly as a hedge against inflation.

Surveying the wreckage of a week of AI disruption Hartnett observes it's spreading like wildfire: insurance brokers Monday, wealth advisors Tuesday, real-estate services Wednesday and logistics Thursday. He points out that the first big sector to be damaged by this theme was Indian tech stocks like Infosys $(INFY)$ - way back in the first quarter of 2025. Worryingly, they have not recovered yet.

The trigger for an improvement in software sentiment would be an AI hyperscaler announcing a capex reduction.

One other potentially important catalyst is the Japanese yen (USDCNY). Hartnett has noticed that in the last few weeks correlation between the yen and the Japanese index JP:NIK has suddenly flipped to positive for the first time since 2005. For Hartnett and his team nothing says "secular bull" than the currency and the equity market moving up in tandem.

Japanese stock and yen correlation has suddenly flipped positive for the first time in two decades

The problem for risk assets at present is strength in the yen is forcing an unwind of the carry-trade whereby traders borrow low-yielding Japanese money to reinvest in higher-yielding risk-on assets in global markets. If the yen keeps appreciating then further weakness in crypto (BTCUSD), silver (SI00), software IGV and energy XLE is probable. A yen surge generally means global deleveraging.

Despite this present weakness, Hartnett insists long-term support levels of $58,000 on bitcoin, big tech XLK at $133 and gold (GC00) at $4,550 will hold, but he doesn't discount the possibility they'll be tested.

-Jules Rimmer

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February 13, 2026 10:24 ET (15:24 GMT)

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