Jim Bianco, president of Bianco Research, has reversed his bearish stance on bonds after six years of skepticism. He told CNBC that bond yields across five to 30-year maturities have reached 5% or higher for the first time in two decades, prompting him to add exposure to his portfolio as the 10-year Treasury yield remains near two-decade highs.
Bianco argues that current yields reflect fair value rather than market dysfunction. He notes that a 5% nominal yield aligns with an economy characterized by inflation near 3% and real growth near 2%. From his perspective, five-year Treasury yields at 5% represent a normal and appropriate level, not an anomaly.
The bond market selloff may have further to run, according to Bianco, who is adding bond exposure gradually. He attributes some investor concern about elevated yields to lingering effects from the 2010 to 2020 period, when rates were negative and central banks pursued aggressive money printing policies.
Potential Risks to the Bond Bull Case
Bianco sees manageable debt levels among hyperscalers and large cloud and artificial intelligence spenders. He notes that corporate debt has shrunk relative to GDP over the past 10 to 15 years. However, he identifies vulnerability in triple-C rated credits, some of the lowest-rated corporate debt, particularly among gaming, cable, and lottery operators. Single-B rated credits, one tier higher, have remained stable.
Companies that refinanced debt at lower rates five years ago may face higher borrowing costs when that debt matures, though Bianco sees no immediate risk and is monitoring the situation.
Analyst Benjamin Cowen expects the 10-year yield to peak before mid-November following its October 1 high of 5.342%. He projects long-term rates may continue climbing over the next 10 to 20 years.
