U.S. National Debt Approaches $40 Trillion with Annual Interest Costs Reaching $1.5 Trillion
Nashnova编辑部
US national debt is days away from breaching $40 trillion for the first time, carrying an annual interest bill of $1.5 trillion; BofA strategist Michael Hartnett warns the burden will keep climbing unless the 5-year Treasury yield drops to 3.25% or below — a threshold that is reshaping how capital gets allocated globally.
What does $40 trillion actually mean?
US national debt will cross $40 trillion within days, with annual interest payments already at $1.5 trillion. This means → servicing the debt alone costs roughly the entire GDP of a mid-sized economy every year.
BofA chief equity strategist Michael Hartnett calls this milestone a "millstone," not a milestone" — a weight that grinds the economy down rather than marking progress.
At the current pace, he projects debt will reach $50 trillion by July 2029 — another ten trillion in under five years.
Why are investors still avoiding bonds?
Hartnett sums up the prevailing market mood as "Anything But Bonds." Investors prefer equities because they expect policymakers to shrink the debt-to-GDP ratio by pushing nominal GDP growth higher.
He describes "Wall Street trading at zero fear," with the stock market seen as "too big to fail." This reflects a collective bet: governments will not let equities crash, so risk assets paradoxically feel like safe assets.
Two triggers could break this pattern: Fed chair nominee Warsh delivering a hawkish signal at the August 28 Jackson Hole symposium, and the Fed and Bank of Japan tightening in sync in September.
What is he recommending now?
Hartnett favors long-duration assets — those most sensitive to falling rates — including biotech stocks, REITs, and regional banks. This means → he is betting yields peak in the coming quarters and positioning early for rate-decline beneficiaries.
He also recommends gold as the best hedge against dollar depreciation, falling bond prices, and asset inflation. In plain terms = the dollar is weakening, bonds are unstable, prices are rising — gold hedges all three at once.
A weaker dollar typically benefits emerging markets, which underpins his constructive view on EM assets.
Is the China "humiliation trade" reversing?
Hartnett notes that Chinese equities and property — previously dubbed the "humiliation trade of the 2020s" — are showing early signs of capital returning. Drivers include tech-sector growth in Japan, Taiwan, and South Korea, plus the China AI boom.
He sees Hong Kong property stocks as an early entry point into this trend. This reflects a shift: capital is moving from "Anything But China" toward rebuilding China exposure.
He expects Chinese capital to eventually rotate out of bonds and into equities on a large scale — if it happens, the size and speed may exceed market expectations.
What is the contradiction at the heart of AI investing?
Hartnett has long recommended shorting AI-related bonds, because over $1 trillion in capital expenditure will flood the market with new bond issuance. In plain terms = building data centers requires massive borrowing, and that much new supply pushes bond prices down.
He simultaneously holds a long position on AI equities, calling it the "hubris trade" — staying in AI stocks through a bubble. This means → he believes AI stocks are in bubble territory, but the bubble has not peaked yet — exiting now is premature.
The key risk: if political controversy around data-center construction intensifies and halts expansion, AI stocks could drop 10%, the dollar could weaken in tandem, and bond yields could fall. This scenario is the critical test of the market's current "zero fear" pricing.
Content is for reference only, not financial advice.