Jim Bianco at Bianco Research thinks there is one more push higher in long-term yields. Then if sentiment is extreme, he will go long. 
Thoughts From Bianco
Going to a Neutral Stance
No Capitulation
A Chance to Go Long
Risk-Reward Thinking
I like this kind of thinking. Trying to get the last ounce out of a trade is often wrong. It’s possible a near-term top in yields is already in. Perhaps not.
The Fed has surely made a mess of things. So has the Biden administration with sponsored inflation in everything he does (excessive fiscal stimulus, poor energy policy, regulatory madness, student loan cancellations, Inflation Reduction Act, tariffs, etc., all highly inflationary)
But no one knows what the market will do. So, for Bianco, it’s now wait and see.
Jim did not say, but I suspect the next move lower may be a counter-trend. To those who suggest inflation is transitory, I suggest the recent decline in year-over-year inflation may be what’s transitory.
He is not trapped in a one way funnel. He was short and is now looking to go long US Treasuries. I suspect for a trade, not a long-term bet.
But “Will discuss more when/if we get above 5.00%.”
Thanks Jim! That was understandable guidance people can use.
In case you missed it, here is some guidance we can do without: Forward Guidance: The Fed Sounds Like a Wizard Reading Chicken Bones
The Treasury is increasing the debt a trillion every three months or so. Is there any plan to stop this and reduce the debt? No. What is their plan??
The biggest foreign holder of US debt is China. What if China asked for a US territory or two in exchange for debt forgiveness ? China is running debt trap diplomacy in Asia and Africa. The Americas must be in their radar. They have penetratrd a couple of countries in south America in exchange for shipping rights
They can exchange their T bills for dollar bills from a buyer. Then they have to spend the dollar bills or watch the value move toward zero. This is good for US businesses and the current account deficit. China dumping treasuries is the biggest red herring ever.
The US would just say f789 you — feel free to dump your US holdings (and commit suicide)…
We are all in this together — if the US blows up — everyone blows up.
China holds around $797.7 billion of the total U.S. national debt, which is roughly 2.6% of the total. Japan owns about $1.2 trillion in US national debt. The other three countries which own US national debt are United Kingdom: $668 billion, Belgium: $331 billion and Luxembourg: $318 billion.
Thanks for sharing facts — they seem to be unavailable to most posters here and I do wonder why.
A speculation — which you’re entitled to — but not anchored in fact. China has long NOT been the biggest holder of Treasuries. This is not a secret.
The plan is to increase the debt by 1 trillion per month…. until this causes the global economy to implode
Still waiting for my 6-7% on Money Market funds. …….Cost of $money should never, ever be Zero. Thank god interest rates are finally normalizing and the bond bull from the last 40 years has finally broken out. Bond prices down/Rates Up.
What the Fed/.gov has done over the last decade will go down in history as being the most incompetent policy known to mankind. It’s the “hot-air” balloon effect. Pump some gas into the balloon……it doesn’t do jack for a long period of time. ….then it finally does! ….and Up we go! We are finally reaping the incompetence of Fed policy of 0% interest rates over the last decade. (The FED should of taken the gas off the balloon a long time ago). Now we’re finally feeling the effects. Savers have absolutely gotten completely screwed over the last decade. (The amount of money the FED has stollen from savers is incomprehensible). The FED ‘s ultimate goal is devaluing the $USD. They’ve robbed anybody for saving $USD, but in the same time, have benefited borrowers. Debt slaves. Borrow, Borrow, Borrow, go into debt. You have to laugh at the people that say…”We’re passing this on to our children”, my god, how can we continue to live this way!? …Folks, the USA is BANKRUPT. We will never, ever pay our debt off. It’s amazing that our government continues to spend and spend and spend, and foreign countries continue to buy our bonds. (which now, they are starting to figure this out). Low interest rates have favored DEBTORS, It’s about time that people that have ZERO debt get compensated! ….You can borrow my $$$$$ that I have take decades to save…….@ 7-8%.
Best advice on trading:
* Those who know don’t tell
* Those who tell don’t know
Consider all market pundit advice accordingly
Well, you just kept me from posting.
The 40 year bond bull is over. It is part of a larger 54 YEAR interest rate cycle. Coming off the bottom of the interest rate cycle is a 54 MONTH cycle, which is due to bottom in September / October 2024.
Structurally, The Elliott wave in yield from the 2020 lows to the November 2023 highs was motive. The bond market has been in a correction since then. Corrections need at least 3 distinct moves. The first move into the December 2023 lows looks kind of motive, so the yield rally up to the April 2024 highs needs one more move lower to complete the corrective pattern.
Fibonacci and structural (lows of wave 4 on the rally out of 2020) targets indicate 3.33% and 3.25%, respectively. Multiple techniques are coherent; therefore, the predictive probability is actionable.
Predicting the future is a dicey business. However, predicting politicians will do the right thing is easy: they won’t. The unmanipulated scenario is for debt deflation. But that mean governments lose power. Government stooges are addicted to power and to acting important. Thus, they will inflate away. More reckless spending, more stupid government programs and wars upon wars. The kakistocracy is in full bloom!
Short term money flows peak in June, and long-term money flows should decline thereafter (provided the drop in the QT taper doesn’t impact the trend).
Based on that, interest rates should peak with the 5th seasonal inflection point.
No one may knows what the market will do, but we do know what the Neocons and WEF will do. Which way does inflation and yields go with WWIII?
If Trump gets elected, and he gets his way on tariffs, interest rates, Fed independence, tax cuts, and deporting the undocumented residents, US inflation will certainly go through the roof and the ten-year as well. Anybody who believes Trump will make it should buy TIPS.
If Trump got elected there are sure to be some changes made to how US Government runs affairs.
1) Energy policy would mean unleashing Americas energy sector to do what they do best. Produce energy
2) US Business owners would come out from the Bunkers they are hiding in to avoid Biden confiscations of the generational wealth they have been building.
3) Regulatory burdens instituted under Biden Regime so as to forward progressive policy goals would get eliminated.
4) Merit based advancement rather then Racial and Ethnic based selection would change the workplace. This would encourage achievers to put out extra effort.
Under Biden it has become “Do a Good job or Bad Job, what’s the difference as I get paid anyway.” His regime is filled with people as living proof of this statement.
Why do 1) to 4) have any relevance for inflation?
Because true believers have faith — not knowledge.
Deflation or depression, take your pick
Deflation or violent civil riots, take your pick
Deflation or bust, take your pick
There is ONLY 1 way out of this and that is to crush everything and deflate it all. The FED hasn’t figured this out yet and still think they can slip an elephant through the eye of a needle and they have every starry-eyed dipshit egging them on
RAISE RATES above 8%, rolloff their illegal balance sheet to ZERO in the next 18 months and DEMAND the criminals in congress to STOP SPENDING and we have a good chance of coming out of this without depression and bloodshed
If you are a “cut rates” and soft landing selfish prick to bubble your own asset book, you have no idea the boiling anger and what comes after that…… careful what you wish for as the 2nd, 3rd, 4th order consequences aren’t what you think they are.
And in the end every overindebted govt has resorted to inflating their way out. Don’t ever assume these pricks will do the right thing.
Paul Volker needed 12% US Treasury bonds to cure less inflation than we have today. Janet Yellen needs 20% inflation to default on the national debt. We’ll have 20% inflation before we see 12% US Treasury bonds. In some quarters we already have 20% inflation.
Back then our debt to GDP was miniscule and we could afford the interest payments. Now its impossible. Also the calcualtion of inflation has been deliberatly manipulated to under report true inflation. In the end they will go the inflation route but resort to yield curve control. It will be ugly in the end.
Fugly is the word. Your EBT card won’t buy a Happy Meal.
What about a steepening yield curve? If this perpetually inverted yield curve of late returns to some semblance of normality, that could mean a 7-8% ten-year based on current short-term rates. Seems like the Fed would be forced to implement QE in that case to avoid the fallout in the banking sector.
That would be a rare Bear Steepener. A Bull Steepener seems much more likely which is short yields falling further and faster than long yields.
Will all depend on the path of inflation as reported.
While Mish is right about rents not coming down I h ave read that just mathematically, the way they calculate OER is going to start dropping soon, regardless of what is happening in the actual economy.
Used car prices dropping like a rock, etc etc.
Likely Insurance rates and brokerage, some of the big contributors to up lately will not persist, though who knows.
My own view is we are right on the precipice of depression, which will see a period of deflation. The RESPONSE to that by the government, regardless of who wins will likely lead to a very large inflationary period after the initial plunge in yields, but nobody really knows
my rent went down big time. moved to a nicer hood too.
“…to avoid the fallout in the banking sector.”
First of all, the fallout in the banking sector cannot be avoided. Cut rates so greed-mongering bankers can “avoid” deserved+overdue pain? This sort of “Easy Button” thinking is childish & elitist.
Further, the Fed has already COMMITTED to facilitating bank failures + bank consolidation… Powell has made this commitment in plain language, out-loud, multiple times. More banks are going to fail, the Fed knows & expects this, and the Fed will FACILITATE the process of insolvency+consolidation.
The notion that the Fed will be “forced” to change policy to keep Mr. Market happy is beyond delusional.
“The notion that the Fed will be “forced” to change policy to keep Mr. Market happy is beyond delusional.”
Are you nuts? The Fed is fully beholden to the Mr. Market, as has been for the past like 15 years. If it weren’t, they’d be raising rates right now instead of teasing cuts. That doesn’t mean that I like or agree with this behavior, but it is what it is. Invest accordingly.
You pointed out one reason the curve won’t uninvert with the short term rate being what it is today – the banking sector would blow apart, which would be insta-deflation and rates would drop just as fast. It also won’t [likely] uninvert with 5.25-5.5 being the low yield because higher rates are the cure for high rates. The bond industry [thinks they] knows these [seemingly] restrictive rates will eventually stifle growth, bringing inflation down.
If you don’t think rates are restrictive enough then the likely path is higher short term rates which lower longer term inflation expectations which lowers long term yields. If inflation doesn’t resume falling (disinflation peaked in June last year btw, and wall street acts oblivious to this) and the Fed does nothing then longer term rates will rise a bit. Only a bit as Jim Bianco speculates, as again banking stress plus tighter financial conditions will do the Fed’s job for them. They should have shut their mouths.
If you want to look at some interesting data to go along with the six cuts then four then two now maybe zero and extend it to what might be – Wall Street speculating on rate hikes – take a look at the monthly comps rolling off. April, 2023 PCE is the last high comp rolling off at .4. After that, it’s .1’s and .2’s. The trend in PCE has been .1, .1, .2, .3, .3. If that trend continues or even flatlines while the small comps fall off the 12 MRT then inflation reexceleration shows loud and clear and the Fed is going to poop a new brick headquarters.
They should soon come out with 100 year Treasuries.
Funny you should mention that. Back in ’08 MISH had a post about this very topic. See link below.
https://mishtalk.com/uncategorized/former-treasury-undersecretary-proposes-100-year-treasuries/
Since a good chunk of my retirement is in 10 year yield more or less, I am investing where my mouth is. 🙂 In 2025, no matter who is president (dont fight the fed), short term interest rates are going to zero. Trump loves free money for his rich buddies, and Biden will have gotten his 2nd term making him a successful president in history’s eyes. So, with 34.5 trillion in Federal debt (plus all other government debt) and headed higher, there is no way Biden and his Fed lackey can keep rates above zero for long without bankrupting the country or inflating us into oblivion. This is the result of debt orgies. With endless supplies of short term bills at zero, everything else goes to zero as well.
They can keep rates higher but will have to continually increase taxes to pay the debt interest.
Which we both know will never happen (raising taxes) in a country whose growth is now suspect.
“there is no way Biden and his Fed lackey can keep rates above zero for long without bankrupting the country or inflating us into oblivion” Wouldn’t dropping rates to zero create inflation into oblivion? That’s how we got to where we are today.
Yes. But there is no political alternative. The country and the world sat on its hands and did nothing as interest rates went to zero from 2006 to 2020 (mortgages at bottom were 3%). And Biden wont care about inflation. He’ll have two terms. Carter had one = failure.
I think the 10-year is played out. The most you could ever hope to squeeze out of it is 5.25%, but the yield has long since plateaued, and the probability of yields edging down to 4.25% is higher than them edging up any more.
Buy low sell high, I’ve been accumulating TLT for some time now. I DRIP the dividends/interest right back into more TLT. Whether bonds go up or down this year, I will continue to buy more TLT especially on declines.
At some point, the Fed will have to lower interest rates then we’ll be off to the ‘sell high’ part. I’ll exit when TLT gets above $140 selling covered calls all the way up.
….$….$
Brilliant: LOWER HIGHS and LOWER LOWS is your BUYING Strategy?
My strategy is long term profits. This may take years to play out and I’m fine with that because it’s hard to find value in this over-valued market. In the meantime while I wait I collect dividends and accumulate.
Don’t you worry one bit, I’ll be here to tell you when I’ve reaped 200% profits.
“My strategy is long term profits” — that’s a goal. Clearly is you think it’s a strategy, then you may need to do more work thinking this through.
“…At some point, the Fed will have to lower interest rates…”
Keep believing that.
The Fed doesn’t have to do anything, and if Powell commits to DEFEND the $USD vs. all other fiat (a very real & likely possibility), then we will have 5%+ interest rates for a loooooooooooong time.
It’s not 1992 anymore.
The Fed will need to lower rates. There are $2 trillion in CRE loans that need to be rolled this year and next and if every owner walks away it will collapse the banking system far worse than the 2008 crisis. There is also $1.3 trillion in credit card debt, $1 trillion in student loan debt. High rates will lead to everyone defaulting and whatever “savings” you have in a bank will go poof because your money isn’t there, it was loaned out to someone.
https://www.youtube.com/watch?v=iPkJH6BT7dM
Ironically, the only place that is fine is mortgage loans and those that locked in below 3 percent loans.
It will be more like the Savings and Loan crisis in the late 80s.
The big banks aren’t very exposed to CRE loans (they packaged and sold to pension funds of course). It’s the mom and pop banks that are highly exposed and many will go under and we’ll get a repeat of the Savings and Loan crisis.
But this won’t cause a banking crisis like 2008 because mom and pop banks aren’t big enough to matter.
Finally deposit insurance will cover 99.9999% of all people given almost no one has large sums of cash in their account anymore.
are you aware that the small banks often keep their money at the big banks? If you have a credit union account or account at a small/mid size bank, next time you are there ask the bank manager where they keep their deposits, you may be surprised to learn that it’s at JP Morgan, Bank of America, Wells Fargo or Citibank.
And you really need to catch up on the bank bail in law.
https://www.investopedia.com/articles/markets-economy/090716/why-bank-bailins-will-be-new-bailouts.asp
I’m aware of bail ins. But how many people have more than 250K in a single account? I suspect less than .0001% of people. Normal people don’t have that kind of money lying around in their checking account. It’s invested in TBills or Bonds or Stocks etc. Esp with banks paying very low interest on accounts.
Now mid sized companies might have more than 250K since a medium size payroll would exceed 250K. But I would hope those companies would spread that across multiple banks and accounts to get 250K per account per bank.
Anyway, if small banks keep their deposits at bigger banks how is that a problem. If they fail, the money is there at the larger bank. Remember, it’s loans that are the problem, not deposits.
Have people forgotten Silicon Valley Bank? “People” like Peter Thiel were made whole on their deposits regardless of amount. Thiel is thought to have had some $50MM in deposits at SVB.
And the FDIC coverage if large enough will lead to impairment charges at the big banks. Banks earning less, combined with the economic uncertainty that comes with bank failures, means tighter credit standards which means lower inflation.
OP has a solid plan. Sticking to it will be the hard part as there’s a whole lotta duration in TLT. The gain and loss swings are going to be rather large, and likely frequent. I’m not sure about the covered calls part and would rather let it ride than get called out. Bond swings are swift and steep, and you’d need a pretty steep OTM premium to make up for the potential gains you’d miss out on. All it takes for OP turn equity-like profits could be as little as the government stagnating spending and raising the corporate tax from 21 to 28% as a “down payment” on deficit normalization. Or, the credit squeeze that’s been building (cc and auto defaults already outlandishly high) turning into real pain. Insta-profits, but it’s not going to be easy watching duration take big chunks out of that portfolio in the meantime. Hopefully for OP, the pain has already been put in the last 4 months and is over.
Sorry but your points are largely irrelevant to the issue of the Fed lowering rates. CREs are not held by banks (they merely package them). Maximum credit card rates are determined at the state level. The value (or “principal”) of student loans does not change with the level of Fed determined interbank rates. That’s why Biden is looking for a “write down”.
The people who the Fed works for are quite unaffected by interest rates. Their assets are in equity, not debt. Have you looked at the stock market lately (you make no mention of this): as an example, MSFT hit an all-time high yesterday.
The Social Security Administration approved a 3.2% increase in 2024 payouts. No one cares about the retired, fixed income pensioner — least of all, senior government officials. Accelerating “kill off” makes them heroes. Did you notice declining US life expectancies? Don’t bother to compare that trend with Gambia. You won’t like what you see.
Does anyone find the infinite demand for Treasuries to be straining credibility? As if the Treasury/Fed had some means of concealing their purchase?
To be fair, US bonds are probably the least ugly government debt in a sea of ugliness.
which is exactly why FFR will remain “high”.
Powell’s objective may be to crush the eurodollar “system” & re-patriate $USD/monetary policy. It makes sense.
May well be result of weakening Loan demand in Banking sector. Caused by two things actual demand falling and tightening of lending standards.
Banks getting forced to reinvest prior loan commitments as they return to portfolio’s.
they would purchase a government security as there are no alternatives.
Commercial real estate continues its slump. Bank Liquidity has few places to go other then into Treasuries.
Would take this as some confirmation that economy is slowing and probably faster then is recognized.
Thanks to accounting rules, banks can “hold to maturity” on Treasuries and not report losses; however, for gains, they use bond volatility to boost earnings and hence bonuses. So they love Treasuries — buy what your regulator (USG) is selling and you’ll never go wrong.
That is not an accounting rule. FASB ruled mark to market. The banks ran to Mommy and she (Congress) overruled us accountants.
you talking in 1993? FASB is part of the problem … no worries tho, read the footnotes.
Summary of Statement No. 115
The demand comes from all sources. Foreign buyers are purchasers until they figure the US treasuries are not risk free.
Another reason US interest rates needs to be high beyond inflation.
Of course, it’s counter-intuitive, ballooning deficit should be a worry because of interest payments, but the same high interest rate attracts foreign buyers.
Slowly, then suddenly.
Hugh Hendry on the evil Bloomberg yesterday or the day before is one who conceives we have a double bottom in yields.
The chart is very ugly. Technically we have been in a severe downtrend in price, uptrend in yields, since March 2020. And yes we broke the downtrend in yield starting in 1981. But technically, one would expect after such a break for yield to at the least, come back and test the breakout area, which now means a futures price of 160 or so, some 40+ points higher in the 30 year. In the 10s yield maybe something like 2%, not really near the 38 bps low achieved in the initial COVID spike. If Hendry is right and we test the ATL, then maybe 50-100 bps
Fundamentally, things are mixed. Yes, Biden is an inflation monster. Trump too. But long term growth potential of the economy is low and falling. We will likely get a period of deflation in the coming Depression, though if the GSEs get their way we might get another couple trillion in Home Equity consumer leverage that keeps inflation high
In any event, markets can do Ls, like Japan did, just as readily as Vs
We are long the 30s and selling covered calls against the position to help lower basis over time.
You can’t have inflation when commercial loans are contracting or constrained, and when the economy is contracting or constrained. Inflation is where credit expansion rate is faster than GDP growth rate. Deflation is what is here.
I think we can have inflation based on skilled labor shortages – nurses, aircraft mechanics, electricians, prison guards, police, the military, auto mechanics, medical specialities,sawmill workers, just ordinary factory labor – the list grows longer by the day. They can charge what they wish.
There are many inflation dynamics, and the labor part is only one of many, though important. What is interesting is COVID plpandemic resulted in what the left was trying to achieve, a huge one time jump in the minimum wage. The labor market is still reverberating from that big jump at the bottom
Some other dynamics have turned more inflationary as Mish has detailed in many articles. But some of the big ones, like the sovereign Debt and Demographics are still highly deflationary, actually more deflationary than they were before the asteroid in the ocean that was the planned pandemic.
They can charge what they wish? I wish I could have some of what you are on.
Go try getting a job in most of the places you mentioned. Aircraft and auto mechanics make next to nothing and are quitting in droves. Shops would rather hire someone who knows nothing and pay them peanuts than pay a little extra to someone who knows what they are doing. Virtually none of the $120-175 an hour is going to the workers. I see ads posted looking for experienced electricians advertising $30-35 an hour, which doesn’t cut it when the median house is $400k.
Seems the only “job” that pays anything is politics.
There’s some truth in that given that we have situations such as Boeing – in which no one will go to jail. However, when I get my home or car worked on, I see this. Likewise, skilled healthcare.
The interesting thing is that wages have decoupled from supply/demand in many industries. In other words, they cannot ‘charge what they wish’. For some reason, and I don’t know the reason, it hasn’t played itself out that way; at least up until now.
Consumer lending is also still severely constrained, and I don’t see that changing. Credit (or lack thereof) is the elephant in the room.
Guess you’ve never heard of stagflation. Look it up.
Inflation is bad. Inflation harms the majority of people.
There is no inflation – price rises are not inflation – they are engineered scarcity.
Deflation is good. Personal Computer power prices halved every two years for decades and were a dynamic growth market. Millions of us benefit from deflation.
The Fed thinks deflation is bad because some pointy headed professor told them so at the ivy league university degree mill where they bought their degrees with the guaranteed A grades.
Lower CPI prices are indeed a blessing for shoppers. Most Americans want prices to go back to where they were a few years ago.