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

Jim Bianco says he became constructive on bonds at the beginning of the month for the first time in six years and started buying longer-duration Treasuries. Yields are no longer expensive, in his view, though they are not cheap: they better match his expectation of 5–6% nominal growth, comprising about 3% inflation and 2% real growth. When he made the call, every Treasury maturity from three to 30 years yielded at least 5%; yields from seven to 30 years still have a 5% handle. Rates could rise further, he cautions, but he considers the risk-reward favorable rather than risk-free.

He is not buying bonds as a recession bet and does not expect a recession. Bianco argues that the painful repricing from near-zero rates to roughly 5% has already happened, making a repeat of the past decade’s bond losses unlikely. For a negative bond-market return over the next 10 years, he estimates 10-year Treasury yields would have to reach 14–15% within five to seven years, which he considers very unlikely. His outlook depends on inflation staying near 3% and real growth near 2%; he sees little risk of inflation rising to 4–7%, although a further escalation of war that pushed crude to about $200 could damage bonds.

Bianco says the return of inflation reflects a lasting change in goods prices, not just a temporary shock. From 2001 to 2020, PCE goods inflation averaged minus 0.5% annually while services inflation averaged 2.5%; with goods making up about one-third of the index and services two-thirds, goods deflation helped keep overall inflation near 1.6–1.7%. He attributes the shift to positive 2% goods inflation to deglobalization, tariffs, wars and supply-chain problems, contributing to inflation in the low 3% range. Although he agrees tariffs drove much of recent goods inflation, he rejects the idea that removing them would restore goods deflation, which he considers unlikely to return. Higher energy and input costs could add further pressure: he estimates security costs may add $50–$60 a barrel to oil moving through the Strait of Hormuz, while attacks on ships, tanker rates and refining margins also matter. Diesel costs are feeding into producer prices, though he says producer-price inflation is business inflation, not a dependable predictor of consumer inflation.

On monetary policy, Bianco supports ending forward guidance because markets can mistake it for a promise and the Fed can feel constrained when conditions change. He says the Fed’s “transitory” messaging in late 2021 contributed to delayed action, with rate increases not starting until March 2022, when inflation was 8.5%. He believes short-term rates are too low, even though much business borrowing is tied to the short end. In his view, moving policy rates toward a 5–6% neutral range could ease pressure on long-term yields; he puts the federal funds rate’s fair value at about 4.5% and says three more hikes are warranted. He considers 5% rates normal in a 5% growth environment, unlike the near-zero and negative rates of 2010–2020, which he argues encouraged weak businesses, speculative excess and malinvestment.

Bianco sees no broad overleverage in corporate credit after substantial deleveraging since 2008. Corporate credit has fallen from about 290% of GDP to 140%, while government-linked credit has risen from 100% to 160%. High-yield spreads reached about 360 basis points over Treasuries, with yields around 8%, but he says nearly all the widening was in CCC-rated debt; single-B and double-B spreads barely moved. He attributes stress among CCC borrowers, including CoreWeave, to leverage and harder refinancing rather than broad high-yield weakness. He views a 2032 unsecured bond yielding 15% as a particularly bad issuer, not evidence that all troubled credits are bad, and says he would sell or short it. His small convertible-bond exposure is through an index-tracking ETF.

The host cited estimates that AI infrastructure may require $1–$2 trillion in capital expenditure next year, with about $500 billion debt-financed; Bianco expects borrowing to span public and private markets, convertibles and asset-backed facilities. He expects AI credit stress to remain localized, while warning that hyperscalers could face financing problems if returns disappoint. He also sees too much skepticism and too little computing capacity to call AI a bubble peak, comparing the market to 1997 rather than spring 2000. If AI boosts productivity, government rates of 5–6% could remain appropriate, even as corporate borrowing and mortgages cost 8–9%; those costs could strain households and businesses that do not share in the gains. Cutting rates to 3% to support them, he argues, could instead channel capital toward higher-return AI investments, deepening the divide between productive and lagging sectors.