Bond Market Veteran Turns Bullish on US Treasuries for First Time in Six Years, Says 5.2% Yield Provides Ample Buffer

As the 10-year U.S. Treasury yield reaches its highest point since 2007, veteran Wall Street bond bear Jim Bianco has made a rare shift toward a bullish outlook. Jim Bianco, President and Founder of Bianco Research, believes that buying U.S. Treasuries at a yield level of around 5.2% already provides a substantial yield cushion. Even if yields continue to climb, the risk-reward profile of bonds is improving.

On Monday, the 10-year U.S. Treasury yield climbed to 5.27%, marking a new high since 2007. Subsequently, Bianco increased the duration of the active bond index he manages to over six years, surpassing the five-year duration of the Bloomberg US Aggregate Bond Index. This index is tracked by an ETF under WisdomTree. Bianco stated: "Purchasing bonds at a 5.2% yield level already provides a substantial buffer."

Since the 10-year U.S. Treasury yield dropped to a historic low of 0.3% in October 2020, Bianco has maintained a bearish stance on the bond market. This shift marks his first return to a bullish outlook on U.S. Treasuries in six years. He does not believe the bond selloff has ended, but rather thinks that after this round of significant yield increases, the risk-return structure of bonds has changed.

Yields Break 5%, Bond Risk-Reward Ratio Improves

This shift is not a bet that the bond selloff will end immediately, but rather based on more favorable bond mathematics at current yield levels.

According to Bloomberg-assembled data, buying 10-year U.S. Treasuries at current levels means that even if yields rise further to around 6% over the next year, price losses would roughly be offset by coupon income. Conversely, if yields fall by one percentage point, the returns from rising bond prices would significantly outweigh the losses caused by a one-percentage-point increase in yields.

"This is a value investment opportunity. If yields continue to rise, I will keep buying," Bianco said. He also acknowledged that the current bond market selloff may not have ended yet, hence his approach of gradually building positions rather than making a large one-time bet. "I am cautiously entering the market."

Fiscal Deficits, Sticky Inflation, and Economic Resilience Jointly Push Yields Higher

U.S. Treasuries have faced continuous selling pressure recently, with rising energy prices, soaring fiscal deficits, sticky inflation, and the economic resilience of the United States all pushing up long-term yields. Meanwhile, financing demands driven by the AI infrastructure investment boom have further heightened market concerns regarding bond supply and interest rate levels.

Bianco believes that the divergence between Federal Reserve policy and long-term Treasury yields warrants particular attention. Over the past period, even as the Fed was in a rate-cutting cycle, the 10-year Treasury yield continued to climb, reflecting that market concerns over inflation, economic growth, and fiscal supply are outweighing the direct impact of monetary policy itself.

Earlier this month, the Federal Reserve, under Chairman Waters, delivered its first rate hike since 2023, raising the target range for the federal funds rate to 3.75% to 4.00%, while signaling the potential for further policy tightening.

Bianco Has Already Started Building Positions by Raising Duration

Bianco's change in view is already reflected in the bond index he manages. He has raised the duration of the index tracked by the WisdomTree Bianco Total Return Fund to over six years, indicating an increased sensitivity to interest rate fluctuations.

The ETF tracks the active management bond index launched by Bianco in 2023. Since December 2023, the index has delivered an annualized return of approximately 2.6%, slightly higher than the 2.32% of the Bloomberg US Aggregate Bond Index; the ETF expense ratio stands at 0.6%.

Looking at a longer timeframe, Bianco believes that current long-term U.S. Treasury yields of around 5% do not signal an economy in distress, but are closer to historical norms. He points out that since yields peaked in 1981, the average 10-year Treasury yield has been approximately 5.3%, which aligns closely with current levels.

"We are returning to normal," Bianco said. "The zero-interest-rate environment from 2010 to 2020 was the absurd outlier."

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