PremiumHartnett: "The Most Bullish Thing The Fed Can Do Now Is Hike"
In retrospect, it feels like last week was all about interest rates: starting last Saturday, BofA’s Michael Hartnett told clients to “buy humiliation” and start adding some bonds. At first, the bond market promptly humiliated them a bit more. On Wednesday the 10Y touched 5.36% and the 30Y hit its highest level since 2002, before a 10Y auction priced at the highest yield since 2000, yet drew near-record foreign demand and calmed things down. Meanwhile, across the Atlantic, the French-German (aka OAT-Bund) bond spread blew out to 140bps, the widest since the 2011/12 euro crisis.
So this week Hartnett zooms out. His new Biggest Picture is just three words long: bonds end bubbles. And his list of the most bullish things that could happen into year-end starts with something that would have sounded absurd a year ago: an October rate hike, to cap yields.