Jim Bianco: Why I’m Finally Buying Bonds After Six Years

Jack Farley (0:00)

This episode is brought to you by Sarmaya Partners, who manages the Return to Tangibles ETF, Lens, ticker L-E-N-S, the Sarmaya Thematic ETF, built for a return to tangibles. Learn more at sarmayaetf.com and see the show notes for disclosures. Let's get into it. There's a series of twin panics going through the fixed income market right now, not to be too dramatic, but it is accurate to say that there are two spasms going on in bonds that began in late summer. One, long-term treasury yields surged 10-year up, 30-year way, way up, prices down, yields up. The second, AI credit, are these bonds that are financing the AI buildout going to be paid back. We have CoreWeave bonds issued at 9.5% some odd, 2032 unsecured bonds, yields now are going up to 15%.

Wow. What is going on for these two topics? First yields, then AI credit. I'm going to be talking to Jim Bianco of Bianco Research and the WTBN ETF. Jim, wonderful to see you. How are you?

Jim Bianco (1:02)

Thanks for having me, Jack. Looking forward to the conversation.

Jack Farley (1:05)

So Jim, probably one of the greatest wealth destroying events in financial history was the bond bear market of 2022 You were among a handful of people who called that right to be bearish on bonds. But I think since then, a lot of people have said from 2023 onwards, oh, actually bonds are kind of attractive now at 3.8%, 4.2%. Not you. You were one of the few to continue to be cautious or bearish on bonds. And that has played out really, really well with the 10-year yield, 30-year yields absolutely crashing higher, yields up, prices down. So the bear market has continued.

What is your outlook right now?

Jim Bianco (1:48)

Let's say the beginning of the month, the last couple of weeks, I became very constructive on the bond market for the first time as you pointed out in six years. Now, a couple of things about that.

I'm not arguing that bonds are cheap. I am arguing that they are no longer expensive. And the basis for my argument is, where should bond yields be, roughly speaking? Should they be a 10 or a 100 like they were in Venezuela, or zero like they were in Japan, or five or eight, or what is the appropriate level? And the answer broadly is, how fast is your economy growing?

And now keep in mind, that's how fast do you expect it to grow in the future, not what did it grow in the last quarter.

I think that we should expect the US economy to grow between, say, five and six percent. Let's call that three-ish percent inflation. And I think inflation is going to stay sticky in the three percent range. And we could go through that if you want. And two-ish percent real growth.

So that will give you between five and six. So by the beginning of the month, every yield, at one point, when I made the call to say now is the time for bonds, every yield between the three year and the 30 year was yielding with a five handle on it, above five percent. Now every yield from sevens to thirties is doing that right now. And I said, there, we finally got to the appropriate level. Only took us six years. Bonds are no longer expensive, meaning the yields are too low relative to the economy. And I'll step up and own longer durations, meaning longer maturity bonds with higher yields because I want to capture those yields. And I perceive that my risk of loss, that rates go even higher from here, it's always possible and still might happen. But I thought it was a good risk-reward ratio finally for bonds. And that's why I stepped up and belonged. So they're not cheap. I am not making a recession call that everything is going to crash and burn. It's just that we got rid of the expensiveness.

Jack Farley (4:00)

So the economy is not going to crash and burn, but you think that the crashing and burning of the bond market is probably over.

Jim Bianco (4:07)

Yeah. I mean, a lot of people have been looking at charts.

I'm too online. And I see a lot of people putting this chart out of the rolling 10-year yield on bonds was negative. And the most negative it has ever been. Heck, I put that chart out, showing that it's the most negative it's been in like 200 years. But I pointed out whenever I've put that chart out, that that reflects the last 10 years. And what did we do in the last 10 years? We got interest rates off of zero to 5%.