• Bank of America anticipates a sustained US reflation impulse through 2027-2028, driven by resilient macro data and contained inflation pressures.
  • The bank favors tactical yield-curve and duration strategies, viewing 10-year Treasury yields above 4.4% as attractive entry points for medium-term positioning.
  • This outlook marks a shift from stagflation fears toward a scenario of persistent growth with manageable inflation, delaying the Fed's rate-cut cycle.

Reflation Revival

Bank of America has updated its macro outlook, seeing rising odds of a US reflation mini-cycle extending into 2027-2028. The call is based on recent data showing resilient consumer spending, solid corporate earnings, and supply-demand dynamics that keep inflation sticky but not runaway. According to BofA strategists, this suggests the cycle remains intact, supporting a higher-for-longer yield environment.

Tactical Positioning

The bank recommends tactical positioning around the yield curve and duration, with 10-year yields above 4.4% seen as an attractive entry for medium-term exposure. “We expect limited upside in peak Treasury yields but favor curve strategies to capture shifting expectations,” a BofA note said. The view implies that while yields may stay elevated, the pace of further increases is capped, allowing investors to add duration on dips.

Implications for Markets

A reflation regime typically benefits cyclicals, financials, and real assets, while increasing attention on duration risk. BofA’s stance contrasts with earlier narratives of stagflation or a hard landing, instead betting on sustained growth with controlled inflation. This could delay the Fed’s pivot to rate cuts, with markets now pricing in a later easing cycle. Without a policy shock, the bank expects the macro backdrop to support risk assets selectively.

Wider Context

The reflation narrative comes as other major banks also reassess rate-path timelines, though BofA’s outlook is among the most extended. Sources familiar with the matter note that the bank’s global research team sees the U.S. economy outperforming peers, drawing inflows into dollar-denominated assets. However, risks remain: geopolitical tensions or energy price spikes could derail the trajectory. BofA has declined to comment further on specific scenarios.