BofA: Fed October Rate Hike Could Support Risk Assets, Potentially Acting as a "Floor" for US Stocks

PANews, October 13 - According to FinanceBiggo, Bank of America strategist Michael Hartnett has presented a contrarian view that if the Federal Reserve opts for an active rate hike at its October meeting, it may not be a market negative, but could instead help stabilize long-term Treasury yields and provide support for risk assets.

Hartnett believes the core pressure on the market is not short-term rates, but the tightening of financial conditions driven by persistently rising long-term US Treasury yields. Recently, the 10-year US Treasury yield climbed to 5.36%, while the 30-year yield hit its highest level since 2002, raising concerns about further increases in long-term yields. If the Fed remains on hold, bond investors may demand a higher term premium, pushing long-end yields higher; conversely, if the Fed actively hikes and signals its commitment to curbing inflation risks, it could help stabilize the bond market and reduce long-term financing pressures.

Meanwhile, Hartnett warned that current stock market resilience may mask funding pressures. EPFR data shows that in the week ending last Wednesday, global fund flows into cash assets totaled approximately $166.4 billion, bond inflows reached $33.8 billion, while equity inflows were only $12.4 billion, indicating that investors are increasing defensive allocations. Against the backdrop of rising long-term rates, higher-risk assets such as lower-rated bonds may come under pressure first. If the Fed stabilizes the bond market through more aggressive policy, it could become a key factor supporting risk assets.