Bond Veteran Jim Bianco Still Bullish As Yields Soar

Rising oil prices and Middle East war uncertainty pushed sovereign-bond yields to new highs: UK long-term borrowing costs reached 6% for the first time in nearly 30 years, while the 10-year US Treasury yield hit its highest level since 2002. Investors are increasingly pricing further central-bank rate hikes as global government debt sells off. Bianco Research's Jim Bianco remains bullish on US Treasuries, arguing that current valuations offer value despite the selloff.

Analysis

The investable distinction is between a cyclical inflation shock and a durable fiscal-term-premium repricing. If oil-driven inflation expectations are the dominant marginal buyer/seller driver, duration can rally once energy prices stabilize; if auctions continue to clear poorly despite calmer energy markets, the market is pricing a structurally higher real-rate regime. That second outcome is more damaging to long-duration equities, commercial real estate and levered private-credit vehicles than to banks with asset-sensitive balance sheets.

Near term, higher real yields pressure the equity risk premium and raise refinancing costs before they materially affect reported earnings. REITs (IYR), utilities (XLU) and unprofitable growth (ARKK) remain the cleanest liquid duration shorts, while energy producers (XLE) hedge the inflation impulse. The less obvious beneficiary is CME: rate and Treasury volatility lift hedging and futures volumes, whereas Blackstone (BX) and Apollo (APO) face a lagged valuation and realization headwind if cap rates reset further.

The contrarian case for long duration is compelling only if inflation breakevens stop rising and nominal yields remain elevated: that would imply real yields have overshot growth fundamentals. A 1-3 month rally in TLT would likely require softer payrolls/core services inflation, a well-received refunding cycle, or de-escalation in energy supply risk. The thesis is falsified if 10-year breakevens and Treasury term premium rise together after upcoming auctions; that combination points to fiscal supply rather than temporary oil pass-through and argues against catching the bond selloff.

Key Decisions for Investors

• Use a staged long-duration entry rather than a full directional call: initiate 25% of a TLT long only after a weaker-than-consensus core inflation or labor release, then add if the following 10-year auction tails by less than 2bp. Target a 5-8% rally over 1-3 months; exit if yields rise another 35bp while breakevens also widen.
• Run a 1-3 month relative-value hedge: long CME / short IYR in equal beta-adjusted dollars. Elevated rate volatility and hedging activity should support CME earnings sensitivity, while REIT financing and cap-rate risk remain asymmetric; reassess if the 10-year yield declines more than 50bp or CRE credit spreads tighten materially.
• Maintain long XLE versus short XLU as an inflation-shock hedge for the next 4-8 weeks. The trade fails if crude retraces sharply without a parallel decline in long-end yields, which would remove energy cash-flow support while leaving utilities exposed to the duration selloff.
• Avoid adding broad unprofitable-growth exposure through ARKK until real yields reverse decisively. If a duration rally occurs with stable credit spreads, prefer profitable mega-cap growth over speculative software because balance-sheet strength limits the refinancing and multiple-compression risk.