- US Treasuries are currently the riskiest asset class in the world, said Bank of America’s Savita Subramanian.
- She pointed to the large inflow of money into Treasuries, calling them the “epicenter” of a stock market bubble.
- That means Treasuries could face major headwinds, particularly if inflation remains sticky, she warned.
Treasuries may be the riskiest asset for investors — but that has nothing to do with the current debt ceiling crisis, according to Savita Subramanian, Bank of America’s top equity strategist.
“The riskiest asset class in the world right now is the risk-free rate, so basically Treasuries… That’s the epicenter of the bubble,” Subramanian said in an interview with Bloomberg TV on Tuesday. , pointing to large inflows into government-issued securities. bonds as investors anticipate a recession and try to hedge against stock market risk.
But investors have been anticipating a recession for six quarters, she said, suggesting defensive areas of the market like Treasuries are now oversaturated.
In fact, investors are now more overweight in defensive sectors than in cyclical sectors since the 2008 recession, she added.
“But if we’re in this sticky inflationary environment, do you really want to be in cash or bonds? Don’t you want to be in stocks that participate in inflation?” Subramanian said, instead anticipating a rally in cyclical sectors. “I think you can make money owning some of those unloved cyclicals that aren’t necessarily going to be disrupted by [a mild] recession.”
Treasuries sold off last year amid Federal Reserve rate hikes and could face more pressure if inflation remains stubborn, forcing central bankers to keep rates high. Meanwhile, corporate profits were boosted by high inflation, which allowed companies to raise prices.
As markets eye a possible recession, Subramanian said the S&P 500 could rally to 4,300, noting that Bank of America economists have estimated GDP could fall just 0.8% from peak to trough.
businessinsider
