Investing.com -- Bank of America says "whatever it takes" policy intervention is working to hold down bond yields, and strategist Michael Hartnett is telling investors to stay long commodities and gold as a result.

"Policy panic [is] working," Hartnett and his team wrote, pointing to the surging Japanese yen as evidence that efforts to defend key market thresholds, including $4-a-gallon gas, 160 dollar-yen, and 5% Treasury yields.

With central banks now leaning toward rate hikes to restore credibility and ward off a bond yield surge, Hartnett said the priority is protecting the nominal macro boom and asset-price bull market, and that investors should stay long commodities and debasement hedges such as gold.

Commenting on the broader backdrop, Hartnett noted that 10-year rolling returns for U.S. stocks and commodities are running at 15% and 11%, respectively, while Treasuries have delivered -2%, the worst 10-year stretch in 100 years. He argued that such negative long-run returns have historically marked strong entry points, drawing comparisons to 1939, 1974 and 2009 for stocks and 1933 and 2018 for commodities.

Hartnett further touched on the upcoming U.S. midterms, saying investors have largely shrugged off election risk. He believes that a Democratic sweep is unlikely, given a tough Senate map, and points out that the administration has governed increasingly through executive action rather than Congress.

But Hartnett also flagged that the odds are shifting. Trump’s approval rating has slipped to a 35%-40% range, well below the historical average of 53% two months out from a midterm election, and prediction markets now show a 50% probability of a Democratic sweep.

A Democratic sweep would trigger a sharp risk-off move — a stock slump exceeding 10%, along with declines in the dollar and bond yields — while a surprise Republican sweep would be a green light for further risk-taking, he said. A split outcome of a Republican Senate and Democratic House, he said, would be a modest risk-on scenario he called "gridlock = goldilocks."

Flows were broadly positive across asset classes in the week to Sept. 2. Cash funds led with $30 billion, followed by bonds at $18.3 billion, gold at $3.2 billion, equities at $2.8 billion — the smallest weekly equity inflow in nine weeks — and crypto at $500 million, capping a five-week run that brought in $5.5 billion, the most since October.

Within fixed income, investment-grade bonds extended their inflow streak to 22 weeks at $9.2 billion, Treasuries logged a 10th straight week of inflows at $6.2 billion, and high-yield bonds saw inflows resume at $1.5 billion; bank loans posted their first outflow in 13 weeks at $600 million.

Regionally, Japan drew $1.4 billion in a second straight week of inflows and Europe saw inflows resume at $800 million, while U.S. equities logged a second straight week of outflows at $5.9 billion and emerging market equities saw outflows resume at $5.4 billion.

China equities extended their losing streak to a fifth straight week of outflows at $5.3 billion, while tech funds posted their biggest outflow since June at $1.5 billion and financials saw a fifth straight week of outflows at $900 million.