Jim Bianco, a Wall Street veteran and longtime market watcher, is turning bullish on US Treasuries for the first time in six years after benchmark yields surged to two-decade highs, creating an enticing entry point.
“This is a value play,” said Bianco, president and founder of Chicago-based Bianco Research. “If we start to see yields going higher, I’m going to continue to get in.”
Sentiment toward bonds has sharply deteriorated in recent weeks, hurt by a confluence of factors including surging energy prices, persistent fiscal deficits, sticky inflation, a resilient US economy and heavy technology investment to fund the artificial-intelligence boom. On Monday, the 10-year yield surged to 5.27%, the highest since 2007, as rising oil prices prompted traders to boost bets that the Federal Reserve will keep raising interest rates.
While the selloff may have further to run, Bianco said that yields above 5% across most maturities make the risk-reward of owning bonds increasingly attractive. As a result, he increased interest-rate exposure – or duration — in an actively managed index he oversees that underpins a WisdomTree exchange-traded fund. The index’s duration has risen to more than 6 years, compared with 5.7 years for the Bloomberg US Aggregate Bond Index.
“Everybody’s ridiculously bearish on the bond market right now,” Bianco said. “I’m getting a big fat cushion for buying bonds at 5.2%. Now’s not the time to be losing your mind over it.”
Bianco, whose 40-year plus career includes stints at First Boston and UBS before founding Bianco Research in 1998, said he had been bearish on the bond market since 2020, when 10-year Treasury yields touched an all-time low of 0.3% during the depth of pandemic. Now, with yields on the rise, the bond math is becoming more favorable.
Investors who buy 10-year Treasuries at current levels would need to see yields rise to around 6% over the next year before price losses wipe out the bond’s income, according to data compiled by Bloomberg. The return profile is also asymmetric: A percentage-point increase in yields would produce a loss of less than 2%, while a decline of the same magnitude would generate a return of about 13%.
In the current environment, Bianco sees an opportunity to gradually add exposure, rather than make an aggressive bet. His views are reflected in the $100 million WisdomTree Bianco Total Return Fund, which tracks an actively managed bond index he launched in 2023. The index has delivered annualized returns of 2.6% since December 2023, compared with a 2.32% gain for the Bloomberg benchmark. The WisdomTree ETF, which carries an expense ratio of 0.6%, has returned about 2.1%.
“I’m dipping my toe,” said Bianco, whose firm provides macroeconomic and financial-market research.
A key change lately, in Bianco’s view, is the Fed’s increasingly hawkish stance as it seeks to contain inflation. Last year, 10-year yields surged even as the central lowered borrowing costs — a divergence Bianco viewed as a warning that monetary policy was too loose.
“For the last two years, the market has been screaming at the Fed: ‘Wrong policy, wrong policy!’” he said.
This month, under Chairman Kevin Warsh, policymakers raised interest rates for the first time since 2023 and signaled that more hikes are coming. Interest-rate swaps show traders pricing in almost four quarter-point increases over the next 12 months, which would lift the policy rate to around 5% from just under 4% now.
From a longer-term perspective, Bianco says the rise in yields represents more of a return to historically normal levels than a sign of economic distress, pointing to stronger-than-expected manufacturing surveys and stocks trading near records. The 10-year yield has averaged about 5.3% since its 1981 peak, he said, roughly where it trades now.
“We are returning to normal,” said Bianco. “The zero rates from 2010-2020 were the ridiculous outlier.”
Written by: Ye Xie @Bloomberg
The post “Bond Veteran Jim Bianco Turns Bullish for First Time Since 2020” first appeared on Bloomberg
