MW No wonder it's all 'booms, bubbles and debasement' after 312 rate cuts, says Bank of America strategist

By Jules Rimmer

Hartnett still favors gold, U.S. Treasurys and Emerging Markets.

Jerome Powell (L), Chair of the US Federal Reserve, speaks with Christine Lagarde $(R)$, President of the European Central Bank in May. The pair have helped lead a wave of 312 rate cuts over the last two years globally.

In the two years immediately following the nadir of the global financial crisis in 2008, central banks worldwide cut rates 313 times. In the last two years central banks worldwide have made 312 rate cuts with the most important of them all likely to make another reduction next week. Over that period U.S. GDP growth has been 11%.

The world is awash with monetary policy stimulus.

No wonder then, declares Bank of America's chief investment strategist, Michael Hartnett, in his weekly Flow Show report, that asset market commentary is all "booms, bubbles and debasement" when there is so much monetary stimulus sloshing round global markets. The note is titled "From zero to hero" because since the summer, Hartnett's recommendation to buy zero-coupon U.S. Treasury bonds has proved prescient.

Without regular interest payments, zero-coupon U.S. Treasury bonds have no reinvestment risk from being obliged to recycle that interest in lower-yielding securities. As bond yields in the U.S. have fallen, this has turbocharged zero bonds return to 10.7% since July, the same as the Nasdaq COMP but better than the S&P 500 SPX.

Hartnett spends some time in the report highlighting the recent strength of U.S. Treasury bonds, despite the fact that Bank of America's global fund manager survey revealed institutions are running the largest underweight of bonds since October 2022, around the time inflation peaked.

Hartnett predicts that if Friday's CPI release for September is 3% or cooler, then bond vigilantes - investors who sell government bonds because they disapprove of its fiscal policies - will capitulate.

He also quipped that since 10-year U.S. Treasury yieldsBX:TMUBMUSD10Y have dropped 20 basis points since the government's shutdown began 24 days, perhaps the French and U.K. governments might consider the same strategy.

Another prediction of his that really illustrates the new zeitgeist, is the call for corporate bond yields to fall below government yields within the next 12 months, which would be a marker of the weakness of the U.S. balance sheet but also the power of America's largest companies.

The report points out that inflows of $50 billion into gold (GC00) in the last four months exceed the cumulative inflows of the past fourteen years. The market received another $8.7 billion deluge of fresh capital in the week to Wednesday.

Gold inflows are unprecedented. The last 4 months' inflows exceeded the previous 14 years.

Despite these bubble characteristics and its most-crowded trade status, Hartnett is not abandoning his buy recommendation on gold yet. He argues that gold's still structurally under-owned at just 0.5% of private client assets and 2.4% of institutional weightings. Hartnett stays long gold to hedge "the U.S. boom, the AI bubble, the dollar debasement risk and the asset price inflation" which stems from Fed and White House policy.

-Jules Rimmer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 24, 2025 06:58 ET (10:58 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.