The stars may be aligning for the unloved long-end.

That’s according to BofA’s Michael Hartnett who, in the latest installment of his popular weekly “Flow Show” series, said the “4Ps” argue for getting “long the long bond.” The “4Ps” are positioning, politics, policy and profits.

First, a little context. Bonds were beset at various intervals over the past two years by a hodgepodge of familiar bête noires, including inflation and concerns over fiscal profligacy. Late last summer and into early autumn, the long-end was sold and shorted aggressively.

Things turned around in early November, when Janet Yellen (via smaller-than-expected coupon increases at the quarterly refunding) and Jerome Powell (via the beginnings of a dovish pivot) moved to arrest what had morphed into a pretty nefarious term premium repricing / rates selloff.

As the figure shows, the long bond rallied into year-end, but struggled in 2024, as the US economy refused to roll over and inflation overshot during Q1.

Now, with CPI and PCE prices apparently poised to retreat near target (however temporarily) and the economy slowing, it may be time to revisit bonds.

Hartnett noted that BofA private client flows to Treasurys have heavily favored bills (for obvious reasons: inverted curve, no duration risk and no credit risk) while shunning bonds almost entirely.

“Investors continue to resolutely avoid the long-end,” Hartnett wrote.

So, that’s the first “P” — positioning. As to politics (the second “P”), he noted that the political center’s collapsing in the Western world and that “electoral distrust in mainstream politics [is] mirrored by investor distrust that mainstream fiscal and monetary policies will be enacted.” That — i.e. concerns around the fiscal read-through of populism, both right- and left-wing — is a “big reason for the ‘buyers’ strike’ in government bonds” and yet, from a “cyclical H2 perspective,” Hartnett said bond bulls are “thrilled that bonds are rallying despite concerns of a US election ‘sweep.”

As for policy (“P” number three), the Fed’s going to cut. Probably in September. And BofA sees nearly five-dozen cuts globally in the back half of this year alone. Bonds, Hartnett wrote, “love rate cuts.”

Finally, on profits (the fourth “P”), Hartnett still thinks it’ll be wise to “sell the first rate cut” in credit and stocks. “Hard landing probabilities are set to rise given the trajectory of the US labor market, consumer spending and capital spending,” he cautioned, on the way to noting there’s no better cyclical hedge for a hard landing than the 30-year Treasury.