A Major Reversal Amid the U.S. Bond Selloff! Bond Market Veteran Bianco Turns Bullish for the First Time in Six Years, Calling 5% Yield a "Value Buy Opportunity"

According to Zhitong Finance APP, it is rare on Wall Street for someone to turn bullish during the darkest moments of the bond market. But Jim Bianco did just that.

This macro strategist, with over 40 years of experience and previous stints at First Boston and UBS, now heads Bianco Research in Chicago. Since the US 10-year Treasury yield touched a historic low of 0.3% in the depths of the 2020 pandemic, he has remained one of the strongest bears in the bond market. However, as benchmark yields skyrocketed to nearly two-decade highs, for the first time he loosened his bearish stance and began to build long positions in a “value buying” approach.

“This is a value trade. If yields continue to rise, I’ll keep buying,” Bianco said.

Bianco’s shift is particularly notable because he was once one of the bond market’s harshest critics.

Analysis published on his Substack shows that as of this summer, the investment return for long-term US Treasuries had fallen to -1.85%, the worst result since 1803. There have been only 25 months in the entire 223-year history since 1793 when long-term Treasury returns were negative, and 24 of them occurred in the current cycle—the only exception was December 1959, when the return was -0.08%.

Another factor alerting markets is the nearly two-year-long “showdown” between the US Treasury market and the Federal Reserve. Since the Fed began its rate-cutting cycle in September 2024, the 10-year Treasury yield has instead climbed by 98 basis points. Bianco points out that since 1971, a rise in the 10-year yield during a Fed easing cycle has only happened twice before: the instance in 1980 lasted just 119 days; this time, it’s endured for nearly two years.

“For the past two years, the market has been shouting at the Fed: ‘The policy is wrong, the policy is wrong!’” Bianco said.

Multiple Forces Reshaping Bond Market Pricing Logic

The drivers behind this round of US Treasury selloff are complex and far from being explained by a single factor.

Persistent inflation is the first pressure factor. The University of Michigan’s consumer sentiment survey showed that one-year inflation expectations rose to 4.6% in September, up from 4% in August, hitting the highest reading since June. Meanwhile, Middle East tensions have pushed oil prices above $100 a barrel, further intensifying inflation concerns in the market.

Fiscal deficits and supply shocks comprise the second major pressure. The total US federal government debt is approaching $40 trillion, and the cumulative federal budget deficit has reached $1.8 trillion in the first 10 months of fiscal 2026. Surging bond issuance and supply from corporate debt linked to AI infrastructure create a stacking effect—according to Vanguard, Google (GOOGL.US), Amazon (AMZN.US), Meta (META.US), Microsoft (MSFT.US), and Oracle (ORCL.US) issued about $132 billion in debt as of July, far exceeding the annual average of about $35 billion between 2020 and 2024. Broader AI-related bond issuance this year could reach $300–570 billion.

Structurally weakening foreign demand is the third major pressure. For example, Japan, the largest overseas holder, has recently reduced its Treasury holdings to support the yen. Rising overseas interest rates are weakening a key source of demand for US Treasuries.

With these forces converging, the 10-year US Treasury yield soared to 5.27% this week, its highest level since 2007. The 30-year yield broke above 5.5%, the highest since 2004. “Bond vigilantes” in the market have continued to sell long-term Treasuries to pressure policymakers to restore fiscal discipline.

Bullish Logic

Although this selloff may have further room to run, Bianco says that yields above 5% across most maturities are increasingly making the risk-return profile of holding bonds attractive.

The key to Bianco’s bullish thesis lies in a fundamental shift in Federal Reserve policy direction.

Walsh was sworn in as Federal Reserve Chair on May 22 of this year, succeeding Powell. The new chair’s stance on inflation is clear—when asked about the Fed’s attitude toward inflation, he answered with just two words: “Zero tolerance.”

This month, the FOMC raised the benchmark rate by 25 basis points from 3.50%-3.75% to 3.75%-4.00%, the first hike since July 2023. Interest-rate swaps markets show traders have priced in nearly four 25-basis-point hikes over the next 12 months, which would lift policy rates to about 5%.

Bianco identifies this as a pivotal turning point. He believes only when the Fed begins to get serious about inflation and launches a rate hike cycle will long-end yields really peak. This judgment is based on historical observations of bond market behavior: the market pushing long-end yields higher is essentially a “no-confidence vote” in the Fed’s previously overly loose policies.

In Bianco’s view, the core appeal of today’s bond market is not in directional bets, but in the highly asymmetric return structure.

According to data compiled, if investors buy 10-year US Treasuries at current levels, yields would need to rise to around 6% over the next year for price losses to fully offset coupon income. In other words, yields would need to rise another 75 basis points before investors might face a net loss. And return distribution is similarly skewed: every 1% decline in yield brings about a 13% return; conversely, every 1% increase in yield results in less than a 2% loss.

This asymmetry between return and risk is what Bianco calls a “solid cushion.” He especially points out that current market sentiment is extremely bearish—“everyone is absurdly bearish on the bond market”—and such extreme sentiment usually means that excessive pessimism is already priced in.

From a longer-term historical perspective, Bianco believes current yield levels represent a return to historical normalcy rather than a signal of economic distress. He points out that since the 1981 peak, the average 10-year Treasury yield has been about 5.3%, roughly in line with current levels. “We’re returning to normal,” he says. “It was the zero-rate era from 2010 to 2020 that was the absurd anomaly.”

Bianco’s analysis, based on an R squared regression model, further supports this view. Since 1914 (the year after the Fed’s founding), the R squared between bond yields and investment return has been as high as 0.85, meaning that the current yield levels above 5% explain 85% of the forward 10-year average annual return.

In the current environment, Bianco believes the opportunity is to gradually increase exposure rather than make aggressive bets. His view is reflected in the $100 million WisdomTree Bianco Total Return Fund, which tracks an actively managed bond index he launched in 2023. Since December 2023, the index has achieved an annualized return of 2.6%, compared to 2.32% for the Bloomberg benchmark index. The WisdomTree ETF has a 0.6% expense ratio and a return of about 2.1%.

It is noteworthy that Bianco has raised the duration of the managed index to more than six years, higher than the Bloomberg Aggregate Bond Index’s 5.7 years. Increasing duration is a bet on falling rates—a substantive shift from “waiting” to “positioning.”

“I am tentatively getting in,” Bianco said. This approach aligns closely with his analytical framework: he is not calling for investors to go all-in on the long side but instead emphasizes gradually adding exposure at high yields while gaining coupon income and a margin of safety over time.