U.S. Treasury Debt Nears $40 Trillion, BofA Chief: Going Long Gold Is the Best Move Right Now
The total outstanding U.S. federal debt has surpassed $39.9 trillion, just $65 billion shy of the $40 trillion threshold. Even more alarming is the cost: over the past 12 months, U.S. debt interest payments have reached $1.4 trillion, and are about to surpass Social Security to become the federal government's largest single expenditure.
Interest payments consume fiscal resources, fiscal deficits are filled through more borrowing, and more borrowing pushes interest costs higher. Once this cycle becomes self-reinforcing, interest rates will struggle to fall. In Bank of America Chief Investment Strategist Michael Hartnett's Flow Show report released on August 17, he used the title "Fourty Begins to Worry" to describe this moment as the market's core narrative. His judgment is direct: unless the 5-year U.S. Treasury yield falls below 3.25%, this trend will not reverse; and without a major deflationary shock or recession, that is highly unlikely to happen. Based on this logic, he reaches a clear conclusion — going long gold is the best move right now.
Governments Are Borrowing, and Companies Are Borrowing Too
The pressure on U.S. Treasuries is not limited to the government. According to Nomura strategist Charlie McElligott, corporate bond supply has surged 61% year over year, while the issuance of AI- and data-center-related bonds (investment-grade bonds + loans) has reached roughly 12 times the annual average level from 2015 to 2024. Year-to-date issuance stands at $269 billion, already twice the full-year figure for 2025. Morgan Stanley estimates that approximately $1.75 trillion of AI infrastructure funding through 2028 will come from credit markets. On one side, government deficits require more bond issuance; on the other, AI giants need financing to expand capacity. With both sources of supply flooding the bond market, the natural result is the crowding out of funds that would otherwise be allocated to Treasuries.
The consequences of this surge in supply are already being priced into the market. U.S. investment-grade bond issuance reached $145.2 billion in August, surpassing the $136 billion recorded in August 2020 and setting a record for the same period. The spread between 30-year and 2-year U.S. Treasury yields widened to 113 basis points, the widest since April. Long-term yields continue to be pushed higher by corporate bond supply, with 30-year Treasuries issued at a yield of 5.126% last week, the highest level in 25 years. Rising Treasury yields, in turn, increase the government's refinancing costs. This is precisely what "Fourty Begins to Worry" means: a problem of scale ultimately becomes a problem of interest rates.
The Starting Point of the "Go Long Gold" Logic
Once the supply-side difficulties in the bond market are understood, Hartnett's allocation recommendation is no longer an isolated slogan. He reiterates his three major frameworks for the 2020s: ABB (Anything But Bonds), ABD (Anything But Dollar), and AI (All In on AI). The common premise is that policymakers see a "nominal GDP boom" as the way out and view the stock market as "too big to fail." This leads him to conclude that "Wall Street is trading with no fear." When debt has to be diluted through currency depreciation and offset through growth, the real purchasing power of cash and U.S. Treasuries is quietly being eroded, highlighting gold's value as a hedge.
Signs of a weaker dollar have already emerged: through intervention in the yen exchange rate, the U.S. has signaled that it does not want the 10-year Treasury yield to break above 5%. Long-duration assets such as REITs, biotech stocks, regional banks, and small-cap stocks are quietly outperforming, suggesting that the market is beginning to price in a peak in yields. Hartnett also proposes a counterintuitive derivative trade: short AI bonds. With more than $1 trillion in capital expenditures combined with negative free cash flow, AI companies can only continue issuing debt to fund their operations. In his view, this trade offers much greater potential returns than going long AI stocks.
The November Midterm Elections Are the Biggest Variable
At this point, there is still one final piece to the puzzle: when could the "go long gold" pricing narrative reverse? Hartnett's answer does not lie with the Federal Reserve, but with politics. He identifies three key events: Kevin Warsh's speech at Jackson Hole on August 28, the September 16 FOMC meeting (with a 35% probability of a rate hike), and the September 18 Bank of Japan meeting (with a 74% probability of a rate hike). However, he emphasizes that the U.S. midterm elections on November 3 will be the biggest variable determining the market's direction toward year-end. The scenarios diverge: if Republicans retain control of the Senate and Texas Governor Abbott is re-elected, stocks, particularly AI stocks, could surge toward bubble-like levels; if Democrats take the Senate and Texas, stocks, the dollar, and Treasury yields could all fall by more than 10% before year-end.
Returning to gold itself, spot gold has climbed above $4,400 per ounce, hitting a two-month high. According to ANZ, global central banks purchased 244 tons of gold in the first quarter of 2026, the strongest quarterly pace since the fourth quarter of 2024. A weaker dollar, central bank gold purchases, and the debt narrative are currently supporting gold prices from three different angles. The three key factors to watch next are the market's reaction after U.S. Treasury debt surpasses $40 trillion, Warsh's comments at Jackson Hole, and the outcome of the November elections. Together, they will determine whether the pricing logic behind "going long gold" continues to strengthen or reaches a turning point.
