Anatole Kaletsky and Jim Bianco turn bullish on long-duration US Treasury bonds

This shift comes despite the iShares 20+ Year Treasury Bond ETF suffering its longest losing streak ever—10 consecutive days of declines. Yet, the fund saw $5.3 billion in inflows by Monday, marking a reversal from negative year-to-date flows recorded until August 11.

Market consensus expects the Federal Reserve to raise the benchmark fed-funds rate from its current range of 3.75% to 4% to at most 4.75% by the end of 2027. Higher rates typically pressure bond prices, yet bulls are emerging. Kaletsky anticipates lower interest rates ahead, which would reduce yields and lift bond prices, citing a Federal Open Market Committee forecast showing most members expect rates below 4.25% in 2027.

He notes a 0.77 correlation over the past three months between daily moves in the 10-year Treasury yield and Fed-funds rate expectations a year out, suggesting long-term yields are increasingly sensitive to short-term rate views due to greater private investor participation in the Treasury market.

Kaletsky also argues that the Fed may lower rates to protect government solvency amid a widening US budget deficit, even if it compromises inflation control—a move that could undermine central bank independence and ultimately raise yields.

Bianco, meanwhile, is attracted by current yield levels, stating "It is paying me to own those bonds." The 10-year Treasury yield settled at 5.31% and the 30-year yield reached 5.66% on Monday, their highest closes since 2002. These fixed-rate securities pay interest semi-annually and return principal at maturity.

Long Treasuries may also serve as a hedge if stocks fall and the economy weakens, which historically lowers yields. Bianco acknowledged concerns that rising yields could signal broader problems but said he does not see that as a immediate risk.

However, risks remain significant, including soaring US debt, wartime spending, stubborn inflation near 3%, corporate borrowing for AI expansion, and volatile oil prices affecting rates. European bond markets are also experiencing upward yield pressures due to local debt crises.

The article concludes that while 20- or 30-year US Treasuries carry substantial risks, they may appeal to long-term investors willing to endure short-term volatility for potential returns over a decade or more.