BofA Predicts End to Five-Year Treasury Bond Bear Market
Bank of America (BAC) has suggested that the five-year bear market for U.S. Treasury bonds may be nearing its end, driven not by a rate cut or recession but by potential shifts in Federal Reserve policy under Chairman Kevin Warsh. The bank’s CIO Macro Strategy Team highlighted research from economists like Greg Mankiw and Thomas Sargent, who argue that the Fed has strayed from focusing on monetary aggregates such as M2 money supply—a key factor in controlling inflation. The report noted that for the first time since Paul Volcker's tenure in the 1980s, the Fed is revisiting metrics like M2. BofA believes this could lead to a more flexible interpretation of its 2% inflation target, allowing it to average around 2% over longer periods while tolerating short-term fluctuations between 1% and 3%. This shift in policy framework may stabilize long-end Treasury prices. Morgan Stanley also echoed similar sentiments, suggesting that Warsh’s reforms could reduce volatility at the long end of the yield curve. The Fed's evolving approach to inflation control is seen as a key catalyst for potential stabilization or recovery in bond markets.
Tickers: $BAC
Topics: bear market Federal Reserve inflation Treasury bonds