The Bond Pivot: Jim Bianco on Why it’s Time to Start Buying Bonds

I see the bond market as being maybe fairly valued now, where it was too expensive for the last six years.

The way I would look at it, if the bond market is offering me mid 5% yields, I want to start getting in.

If it wants to offer me high 5% yields, I want to get in more. If it gets to 6%, I want to get in even more.

They were too expensive bonds for six years. That expensiveness is gone.

I wouldn't go as far as call them cheap, but at least we've got this reflected.

So a lot of what I said, the economy's strong, inflation is sticky. That doesn't sound bullish for bonds.

But I would argue, yes, and now a mid-fives yield reflects that.

A four yield or a low four yield, which we had maybe three or four months ago, did not reflect that. It does now.

So that's priced into the market. And that's why I would want to start this shift towards the bond market.

A bear market is time, not price. And what I mean by that is everybody says the stock market always comes back. It does.

But is it going to be 2000 where the market peaks and it comes back in 13 years to a new all time high?

Or is it going to be 2020 during COVID where the market peaks and goes down and in five months it makes a new all time high?

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More on that in the show notes. My guest today is Jim Bianco, the president and macro strategist of Bianco Research,

which he founded 20 years ago following roles at UBS and Lehman Brothers.

He is one of the go-to experts for views on the markets, all markets, but bond markets in particular.

He shares a lot of his insights on his ex-account at Bianco Research.

It's a must-follow account if you don't already.

He manages the Wisdom Tree Bianco Total Return Fund ETF.

And he's also joined the podcast hosting platform recently as well.

His podcast, Rational Descent, launching 10 weeks ago? Yes.

10 weeks in, and it's a fantastic podcast to check out as well. Jim, welcome to the Master Investor Podcast. us. Thank you for having me.

Looking forward to the conversation. Great. Great to be with you in person here in London and great timing because it gives us a great today.

This morning, same goes in the US. We're hitting fresh sort of 28 year highs on bonds.

But this morning, the 30 year in the UK crossing 6 percent. So sort of setting the scene for what we've got to talk about.

Now, you have been bearish on the bond market since 2020.

So you've been right about that yields have risen uh

bond prices have fallen this past week or so you've you've

kind of u-turned maybe not banging the table for everyone to

buy all these bonds maybe not bullish on them but but it's you're moving in favor of owning some duration now that is correct i see the bond market as being

maybe fairly valued now where it was too expensive for the last six years if i was to give you

A statistic. In the bond world, we have a statistic called the modified duration.

And all that means is every time yields move 1%, how much will the price move?

And that always fluctuates with what the yield is. So in 2020, the average yield was 2% and the duration was 7%.

So that meant if you went from 2% to 3%, you lost 7% of your money.

But you were only getting a 2% coupon to cushion you.

Today, that is five and a half on the yield, the average yield all in in the bond market in the U.S., and five and a half on the duration.

So now, instead of having to have the market move 30 basis points or a third of a percent against me to lose money, has to move a whole percent against me to lose money.

And that's what I meant by the value is finally back in the bond market now that we're at 5%.

And so I'm getting off of my bearish position and going long bonds.

Now, you're right. I'm not pounding the table that they're a buy, that they're going to rally in fall.

So I'm not talking about the economy falling or the inflation situation turning around. But now you're finally getting paid for the risk appropriately.

And I guess your point there is that there is attractive enough value to put some money to work in the long end of the curve.

And we'll dive into that call a bit later.

But in order to set the scene, higher rates that have obviously been rising for five or six years but have really surged over the last five or six months, why have they surged?