Hoisington’s Hunt Says the Bond Rally Is Just Getting Started

Hoisington Investment Management Co. was pummeled by its bullish stance on US bonds in recent years, driving its Treasury fund to some of the industry’s biggest losses as the Federal Reserve’s rate hikes sent prices tumbling.

But long-time chief economist Lacy Hunt sees the recent retreat in Treasury yields as the start of a rally that will gain steam once the US economy careens into a hard landing.

Long-term Treasury yields have slid sharply since late October on speculation that the Fed has completed its most aggressive tightening cycle in decades and the wave of new debt supply is abating. The benchmark 10-year yield has been hovering around 4.6% — well below the 16-year high of 5.02% reached on Oct. 23. That’s raised hopes that Treasuries might even eke out a small positive return in 2023 after two straight years of losses.

The Wasatch-Hoisington U.S. Treasury Fund is down about 12.7% this year and tumbled 34% in 2022, data compiled by Bloomberg show. That’s put it dead last among the funds tracked by Bloomberg in each of the past three years.

Despite that rough run, Hunt sees a fiscal and monetary backdrop that bodes well for bonds, anticipating that rates will move lower into next year and beyond.

For the bond market, “the cloud is breaking because the economy is heading into a hard landing,” Hunt said in an interview with Manus Cranny on Bloomberg Television. “But it’s a process that will take time. The US economy has very serious difficulties” that will “be with us for a long time in the future.”