Bond Market Turning Point: Why Jim Bianco Just Flipped After 5 Years

Jim Bianco (0:00)

The time to be outrageously bearish on bonds was two years ago when I've been short the market and been badmouthing bonds since 2020

And now at these levels, I'm actually kind of coming around to that there's some real value there. Hike rates on October 28th incur the wrath of the president. Don't hike rates on October 28th incur the wrath of the bond market. Maybe there's some weakening data, maybe there's a deal to get the price of oil down, or something else. But if none of that happens, then he's in a bad place. Who you're going to upset more, the president or the bond market? Because you can't please them both with the situation that we have right now.

David Lin (0:39)

Forget the dangers of AI, the bond market has a much bigger impact on the economy and possibly humanity's future than you may think. Jim Bianco is here with us today. He is the president and founder of Bianco Research. And today is Monday, September 28th. We'll be talking about the rising yields, the decline in equities, and the rise in oil. Trump just rejected a ceasefire proposal by Iran. Oil went up on the news. The 10-year yield followed now at 5.23%.

The 30 years at 5.5%, the highest since 2004

How aggressively is the Federal Reserve going to respond to current events? That's the question we'll be exploring right now on prediction markets. There is a high chance we're gonna get another Fed rate hike by the end of October by October's FOMC meeting. Traders or Kalshi are saying there's going to be a 70% chance that there's going to be a 25 basis point hike by October, if you agree. And if you place a $50 trade on that particular outcome, your payout could be $69, $70, if you're right. Jim is going to give us his outlook and answer this exact question. How aggressively is the Fed going to be raising rates into 2027?

This episode is brought to you by and sponsored by Kalshi. It's the largest prediction market in the United States, and like a sports book, you're trading peer to peer on real world events from economic data to political outcomes, and the price moves based on public opinion, not a house. Go to the link in the description down below, or scan the QR code here to get started. New users who use my code Lin can get $25 in app credits when you trade and sign up and trade $25. CFTC approved and available in all 50 states, including California and Texas. Jim, welcome back to the show. Good to see you again.

Jim Bianco (2:20)

Thanks for having me.

David Lin (2:21)

Dow is down about 300 points today. It's not a good day for equity markets as oil surged. And so to the long end of the yield curve, you said on your own podcast last week, which everyone should check out, by the way, we'll put the link down below, that you believe 5.2 on the 10-year may be close to a peak. Do you still hold that opinion now today with a 10-year at 5.245?

Jim Bianco (2:39)

Yes, I do. And the way I described it was the time to be outrageously bearish on bonds was two years ago when they were near 3.7%, the Fed was cutting rates.

Now that you're near 5.25%, the Fed is hiking all of the bearish talk that we have in the bond market. And there is bearish talk about inflation, about the deficit, about the supply of debt. That's now largely being reflected in prices. Now, I'm not going to be smart enough to say 5.25 is the high, but we're getting close enough that I would actually am starting to look towards getting along the bond market. And I've been short the market and been badmouthing bonds since 2020 And now at these levels, I'm actually kind of coming around to that there's some real value there.

David Lin (3:34)

Are you concerned about the yield curve flattening? Here's a 10 year minus two year. And people have stopped talking about this for quite some time because the yield curve hasn't really been a concern, but every single time it's flattened to near zero, we've had a recession a year later. The exception was 2022 when they apparently decided to revise the way they define recessions. But in any way, in any case, 2022 was a bad year for markets. So now we have the yield curve flattening down to 0.36, the 10 year minus the two year. What's happening here?

Jim Bianco (4:07)

Yeah, so you're right. Everybody knew that the yield curve had a perfect track record in predicting recessions until 2022, 2024 It was inverted from us two years and there was no recession. But I'm going to nuance it a little bit. You're showing the two year, 10 year yield curve, and that we refer to that as the trader's yield curve. But the yield curve that economists really look at is the 10 year, three month curve. That curve has been steepening and is at 100 basis points in the widest it's in several months. And that's largely because the three month is anchored right to the funds rate and the Fed has only raised rates one time.