BOFA: 'RISKS OF A BOND CRASH ARE HIGH'

Sam Ro | May 31, 2013, 11:02 AM | 3,527 | Bonds have been tumbling for most of the month, and most analysts have warned that it could get even uglier.

In a note to clients yesterday titled "Bubble, Bubble, Toil & Trouble," Bank of America Merrill Lynch strategist Michael Hartnett warns that the "risks of a bond crash are high."

More from his note (emphasis added):

As we have argued in recent years, history shows that major breakouts in equity markets tend to coincide with major inflection points in bond yields (Chart). This is now happening, which is why we continue to favor stocks, particularly banks, over bonds. The ideal scenario would be a repeat of the early 1960s, when both equities and bond yields rose in an orderly fashion, a "Velvet Rotation". But it’s hard to believe that the greatest bond bull market in history will end without some bloodshed.

Bank of America Merrill Lynch

Meanwhile, UBS is taking the other side of the trade, advising clients to "Buy Treasuries."

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