Veteran Bond Bear Flips to Bullish as 10-Year Treasury Yield Tops 5.2%
TREE NEWS reports: Long-time Treasury bear Jim Bianco has turned bullish on US government bonds for the first time in six years, arguing that with the 10-year yield above 5.2%, investors are finally being paid enough to absorb further rate risk. The president and founder of Bianco Research said the yield level reached on Monday — 5.27%, the highest since 2007 — offers a “thick cushion” of income that changes the risk-reward math for fixed income.
Bianco has extended the duration of the actively managed bond index tracked by the WisdomTree Bianco Total Return Fund to more than six years, above the 5.7-year duration of the Bloomberg US Aggregate Bond Index. The move marks a material positioning shift from an investor who had stayed bearish on bonds since the 10-year yield bottomed at 0.3% in 2020.
Why the Math Has Changed
Bianco’s turn is not a bet that the selloff is over. It is a bet on bond arithmetic. At current yields, even if the 10-year yield climbs to roughly 6% over the next year, price losses would be broadly offset by coupon income. Conversely, a one-percentage-point decline in yields would generate a price gain that far exceeds the loss from a one-point rise — an asymmetry that favors buyers.
“This is a value opportunity. If yields keep rising, I’ll keep buying,” Bianco said, describing his approach as a gradual build rather than a single large wager. “I’m dipping a toe in the market.”
What Is Driving Yields Higher
The recent Treasury selloff has been fueled by a combination of energy price gains, large fiscal deficits, sticky inflation and a resilient US economy. A surge in financing demand tied to AI infrastructure investment has added to concerns about bond supply and the level of long-term interest rates.
Bianco also flagged a widening divergence between Federal Reserve policy and long-dated yields. Even as the Fed moved through an easing cycle, the 10-year yield kept climbing — a sign that inflation, growth and fiscal supply concerns are outweighing monetary policy. This month, under Chair Warsh, the Fed raised rates for the first time since 2023, lifting the federal funds target range to 3.75%–4.00% and signaling the possibility of further tightening.
Positioning and Performance
The index Bianco manages, launched in 2023, has returned about 2.6% annualized since December 2023, modestly ahead of the Bloomberg US Aggregate Bond Index’s 2.32%. The ETF carries a 0.6% expense ratio.
Longer term, Bianco argues that a 5% long-bond yield is not a sign of economic distress but a return to historical norms. Since yields peaked in 1981, the 10-year Treasury yield has averaged about 5.3%, close to current levels.
“We’re returning to normal,” he said. “The zero-rate era of 2010 to 2020 was the absurd outlier.”
Key Takeaways for Investors
- Income is back. With the 10-year above 5%, coupons provide a meaningful buffer against further price declines, improving the risk-reward profile of duration.
- Asymmetry favors buyers. At these levels, a 1-point yield drop produces a larger price gain than the loss from a 1-point rise.
- Don’t confuse value with a bottom call. Bianco still expects the selloff may continue and is scaling in gradually rather than buying aggressively.
- Watch the Fed-fiscal divergence. Rate hikes under the new Fed leadership alongside heavy deficit-driven supply could keep long yields volatile.
- Normalization thesis. A 5% long yield is close to the post-1981 average, suggesting markets are repricing toward a higher-rate regime rather than a crisis.
