(Bloomberg) -- The rout in US bond markets is likely over in the absence of an inflation or growth shock, according to
The strategist said Treasury yields are "heading toward 4% not 6%" as long as there isn't a resurgence in pricing pressures or a sharp cooling in the labor market. He expects policymakers to intervene with measures such as quantitative easing, yield curve control and a revaluation of gold reserves.
Debt markets globally were roiled this week as worries about government spending and the inflation outlook sparked a selloff in longer-dated bonds. The yield on the 30-year Treasury rose to almost 5% before easing in the past two sessions.
The repercussions for equities have been largely contained so far, with the S&P 500 hitting a record high as investors bet the Federal Reserve is about to start cutting interest rates again. Swaps traders are now fully pricing in a reduction at September's meeting.
The focus Friday is on the key payrolls report for further clues on the health of the economy.
Hartnett said he expects a drop in bond yields to be "supportive of equity broadening via structurally unloved long duration equity sectors such as small cap, REITs and biotech."
The strategist has recommended international equities over US peers this year, a call that's proved correct as the MSCI All-Country World Index excluding the US outperforms the S&P 500.
--With assistance from Sagarika Jaisinghani, Michael Msika and Alice Gledhill.
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