Money markets imply a one-in-three chance the Fed will deliver another half-point cut in November.
Markets have been a "bit excessive" in its rate-cut expectations, the firm's chief strategist said.
Public debt across has soared to more than 112% of GDP in the First World, and bond investors can't overlook soaring budget deficits.
The latest move in the so-called term premium points to a higher recession risk.
Investment-grade bonds have seen three straight weeks of inflows.
Thursday was the worst day for the Bloomberg Treasury Index in more than six months.
The firm thinks bonds are set to beat cash over the next year as inflation cools.
The Treasury market is on course for an unprecedented third year of losses.
A growing list of Wall Street firms are raising doubts that the Fed's interest-rate hike in July will be its last.
The U.S. economy continues to defy recession die-hards who went heavy into bonds at the start of the year.
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