The Bond Pivot: Jim Bianco On Why It’s Time To Start Buying Bonds

Jim Bianco says the six-year period when bonds looked overvalued has ended: they are now fairly valued, though not cheap, and he is shifting from bearish to long. He would start buying at yields in the mid-5% range, add at high-5% yields and buy more at 6%, barring a dramatic change in the economy. At recording, the 10-year U.S. Treasury yielded 5.3%, the 30-year about 5.6–5.7%, and the U.K. 30-year had crossed 6%. He sees room for long-term yields to rise further, and does not expect the move to be smooth.

The case for buying is that mid-5% yields compensate investors for a strong economy and persistent inflation, whereas yields around 4% or in the low 4s did not. Bianco uses nominal GDP—growth plus inflation—to judge appropriate interest rates, arguing that rates should rise as nominal growth rises. He puts inflation at about 3% and says cheaper Chinese imports no longer provide the same goods-price deflation, amid deglobalization, tariffs, supply-chain problems and wars. The economy has remained resilient despite higher energy prices; crude demand is above 20 million barrels a day, near a record. In his view, higher rates track stronger nominal growth rather than an excessive market move.

Bianco says bond risk is more manageable than in 2020. He estimates the market’s average yield at about 5.5% and modified duration at about 5.5 years, compared with a 2% average yield and seven-year duration in 2020. Yields would need to move roughly one percentage point against bondholders today for them to lose money, he says, versus about 30 basis points in 2020. He has bought long-term Treasury Inflation-Protected Securities as a hedged first step: if yields keep rising, he expects TIPS to outperform nominal bonds, while a substantial decline in yields would favor nominal bonds.

The rise in long-term yields while the Fed has cut rates reflects, in Bianco’s view, concern that policy was too easy and insufficiently attentive to inflation, deficits and strong growth. Since rate cuts began in September 2024, he says, the federal funds rate has fallen 1.75 percentage points while the 10-year Treasury yield has risen 1.3 points, a pattern he described as the first of its kind in more than 50 years. Bond investors may want the Fed to reverse more of its earlier cuts and take stronger action to restore its inflation-fighting credibility. Bianco believes a more aggressive Fed could bring yields to appropriate levels and calm the bond market, though he also sees risks to the institution’s perceived independence and credibility.

Bianco argues that bonds belong in portfolios for their yield, not as a reliable hedge against stocks; he says the risk-on/risk-off relationship behind the traditional 60/40 portfolio has broken down. His “456” expectation for annual returns over several years is 4% for cash, 5% for bonds and about 6% for stocks, assuming inflation around 3%. A recession or unforeseen shock could still prompt a flight to bonds and lower yields, so his buying plan depends on the economic outlook not changing dramatically.

U.S. debt remains a concern, but Bianco says combined public and private debt, about 364% of GDP versus 362% in 2006, is not yet choking the economy. He is more concerned that government debt now makes up a larger share as the private sector deleveraged. He also warns that debt monetization could add to inflation by stimulating spending; he sees it clearly in Japan and in smaller forms through quantitative easing in Europe and the United States. With inflation around 3% in the post-COVID environment, that possibility is one reason he wants bond yields to adequately compensate investors for risk.