Who wants bonds? Still nobody.
They don’t work in the “new” old normal. War, macro volatility and profligate advanced economy sovereigns who act like they don’t have centuries of history to consult when assessing the risks associated with fiscal indiscipline, make govies, and particularly duration, a mug’s game.
And then there’s de-globalization, the return of great power competition, the end of sundry “peace dividends” and a generalized sense that we’re moving not just beyond multilateralism, but towards “all against all.”
To be sure, some of the factors which contributed to decades of disinflation remain in place. Demographics, for example. Just ask China about that.
But by and large, the macro consensus revolves around the notion that we’ve entered an era of higher inflation, big spending and less-predictable macro outcomes, which is in turn perilous for bonds.
I get it. God knows I do. I’ve spent half a decade telling that story, paraphrasing myself who knows how many times in the process. But everything has a price, and if you ask BofA, 5% on the US long bond is an entry point.
The figures above — and if you’ve seen them by now, you’ll forgive to me; I got a little distracted editorially last week by the single-most acute bout of geopolitical tumult since Ukraine and quite possibly since 9/11 — give you a sense of the ostensible opportunity on offer.
US government bonds are in 2026 what US stocks were in 2008: A contrarian trade for the bold. (Technically the S&P bottomed in early 2009, but you get the point.)
“[We are a] happy buyer of the 30-year US Treasury at 5%,” BofA’s Michael Hartnett wrote, in his latest. But that endorsement came with a caveat. “Until electorates vote for fiscal discipline, the next few years are more likely to see bear market rallies in government bonds” as opposed to the onset of a new secular bull, he said.
While I too am a buyer of US government debt, I wait for 5% on 10s (that’s a much higher threshold) and I’d gently suggest the only people less enthusiastic about austerity than politicians are voters.
I worry that we might think we are at peak “fiscal indiscipline”, but we aren’t. And then it got worse!
I love buying traditionally sound investments when they are really beat down, but I have been unable to commit to LT government bonds — at least not while fully insured 2-year CDs are dancing around 4%, and our current administration has just about 2 ½ (legitimate) years left in office. 5% on the ten-year would be very tempting, but it has been very rare over the past 20-years. (Currently, it seems to be where one of the TACO lines in the sand has been drawn.) At 5.5%, I would likely commit to some 20-year durations and still sleep well at night. Does that make me a bond vigilante?
I’m doing my 5% on 10-20 year insured munis, lots of them.