It’d be highly unusual if US Treasurys suffered another year of negative returns.

In fact, according to data sets which append historical records to conventional series to reconstruct returns for longer timelines, a third consecutive year of negative returns for US 10-year government bonds would be an unprecedented event.

But there’s a first time for everything, as the old saying goes, and if the current round of default brinksmanship in D.C. doesn’t result in a paradoxical safe haven bid for bonds issued by the very nation threatening to voluntarily default, 2023 could be a year of firsts for Treasurys.

Prior to last year, it’d been decades since Treasurys suffered back-to-back negative returns and, according to BofA’s analysis of the data sets mentioned above, the last instance of US government bonds notching a negative return after a 5% loss the prior year was around the onset of the Civil War.

“250 years of history say US Treasury returns up in 2023,” BofA’s Michael Hartnett said this week, but in the course of presenting what he called “three heretical thoughts,” he suggested the coming recession, assuming a downturn is inevitable, could be cause to sell bonds.

That’s counterintuitive until you put it in the context of what I think it’s fair to call less in the way of tolerance among voters in developed economies for fiscal inaction to combat crises, having seen what’s possible during the pandemic. Unlike 2020, though, central banks are in the process of trying to trim their balance sheets, not finance fiscal stimulus with asset purchases.

You might argue that Republicans in Washington would frustrate efforts to deploy fiscal stimulus in a downturn, and that’s doubtlessly true, but only to a point. I’d remind you that when it comes to debt and deficits, the old guard GOP’s position isn’t actually principled — it depends entirely on who’s in the White House and what’s driving the deficit. As for the “new” GOP (i.e., the Tea Party and its Freedom Caucus progeny), those lawmakers have a populist streak, and that’s not historically conducive to fiscal rectitude.

“Higher unemployment will cause political panic after a long period of entrenched fiscal indiscipline,” Hartnett went on to say. It wasn’t a prediction. He was just sketching a hypothetical. He went on: “G4 governments are set to issue almost $6 trillion of bonds in 2023, coinciding with central banks’ balance sheets set to decline in the first half from $23.5 trillion in December to $21 trillion by June” thanks to QT.

If Hartnett’s hypothetical gives you a sense of déjà vu, you’re not alone. October’s gilt panic in the UK was the result of the bond market rejecting reckless fiscal policy at a time when the Bank of England was set to lean into QT. The result was a multi-standard deviation rise in UK bond yields, which nearly collapsed the LDI complex. The BoE was forced to intervene with emergency bond-buying.

That parallel wasn’t lost on Hartnett. “The biggest contrarian trade of 2023 is US recession equals the low in US bond yields as markets discount global fiscal policy panic and higher government default risk,” he said, calling the UK episode a “lead indicator.”