With the national debt nearing $40 trillion, Bank of America has a warning for bond investors

The U.S. national debt is hurtling toward $40 trillion, and Bank of America Research strategist Michael Hartnett’s “Anything but Bonds” framework is becoming ever more applicable.

Boiled down, Hartnett warns the US is accumulating too much debt, which causes the government to issue too many bonds—and investors want compensation for the fiscal risk—making long-duration Treasurys unattractive compared to other assets.

Here’s why the climbing debt makes the advice worth a listen.

The U.S. national debt stands at roughly $39.9 trillion in mid-August and is expected to cross the $40 trillion threshold as early as this week.

According to the Treasury’s official data , the government’s outstanding debt is made up of both intragovernmental holdings and debt held by the public. (function(){function e(){window.addEventListener(`message`,function(e){if(e.data[`datawrapper-height`]!==void 0){var t=document.querySelectorAll(`iframe`);for(var n in e.data[`datawrapper-height`])for(var r=0,i;i=t[r];r++)if(i.contentWindow===e.source){var a=e.data[`datawrapper-height`][n]+`px`;i.style.height=a}}})}e()})(); Hartnett, Bank of America’s chief investment strategist, has turned that fiscal deterioration into one of his central investment themes.

His “Anything but Bonds” call reflects his view that investors should be wary of long-duration government debt while the U.S. continues to run large deficits and the market demands higher yields to finance them.

He expects the national debt to reach $50 trillion by 2029.

The concern is not that the government owes a lot of money.

It’s that the government has to continually refinance and issue more debt, creating a larger supply of bonds that investors need to absorb.

If investors become less willing to buy that debt at existing yields, the government has to offer higher interest rates to attract them.

This dynamic is already visible in the Treasury market.

The yield on the 10-year Treasury reached 4.6%, while the 30-year yield hit 5.2%.

Those elevated yields reflect the concerns over inflation, fiscal sustainability and the sheer amount of government borrowing.

For bond investors, rising yields are a double-edged sword.