Traders Waiting for 3% U.S. Yields Should Prep for Pain: Bianco

  • 10-year Treasury yields have risen 30 basis points in 12 days
  • A shakeout testing convictions looms by mid-2017, Bianco says

As benchmark U.S. government bond yields gun for their highest levels since 2014, traders shouldn’t yet get excited about the long-awaited bear market, according to veteran investment analyst Jim Bianco.

“We’ve got this gigantic short in the bond market right now -- everybody’s positioned for 3 percent yields,” Bianco, president of Bianco Research LLC in Chicago, said in a Bloomberg Television interview. “Everybody makes money if it goes to 3 percent yields.”

He spoke as 10-year Treasury rates approached their December highs in the run-up to a Federal Reserve policy meeting that’s forecast to end Wednesday with the third quarter-point interest-rate increase in the current tightening cycle.

While Bianco does anticipate U.S. inflation to pick up and the Fed to accelerate its rate hikes, there’ll first be a shakeout of short positions on Treasuries and the current “exuberance” on consumer prices will fade.

“First we go back down, we test everybody’s conviction about going higher,” he said, anticipating a retreat in 10-year yields to 2.25 percent or lower. “Wait till summer and wait till you feel the pain of being wrong on that position.”

Bianco Sees Fed to Pushing for 3 or 4 Hikes in 2017

Source: Bloomberg

Ultimately, if inflation does accelerate, it would be a game-changer, said Bianco, a veteran of some three decades of market analysis. Yields are rising now on the basis of Fed rate increases spurred by a strengthening economy, but that could switch to hikes designed to contain inflation, he said. “We haven’t had that for 20 years,” and it would be bad for stocks, Bianco said.

— With assistance by Yvonne Man

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