Bond veteran Hoisington shifts to bearish stance

Hoisington Investment Management Co., long known for its bullish stance on U.S. Treasurys, has issued a markedly bearish outlook in its latest quarterly report.

New report cites fiscal deficits and higher capital needs

The Austin‑based firm’s filing, signed by founder Van R. Hoisington and chief economist Lacy Hunt, points to a “broader structural backdrop” of expanding fiscal deficits and rising capital demands. The document says these factors “suggest that both inflation and long‑term Treasury yields will trend upward.”

According to the report, the long‑run equilibrium range for inflation is shifting toward 3.5%‑4.5%, with “a significant risk of episodes of inflation above 5%.” The authors argue that investors now “increasingly demand[ing] a higher risk premium on Treasury securities,” creating an interest‑rate environment that is “less stable than the one that prevailed from 1990 to 2020.”

Duration metrics show rapid shift

Regulatory filings reveal a dramatic reduction in the fund’s effective duration. At the end of September, the measure stood at 20.88 years. By the end of March it had fallen to 4.7 years, and as of June 30 it was under one year, well below the Bloomberg U.S. Aggregate Bond Index’s six‑year duration.

The pivot began in the first quarter after a late‑February U.S. strike on Iran sparked a jump in oil prices and heightened inflation expectations. Treasury yields rose as market participants anticipated Federal Reserve rate hikes rather than cuts. The 30‑year Treasury yield neared 5.2% in May, the highest level since 2007, and hovered around 5.12% on Thursday.

Hoisington’s transition may appear delayed. After 30‑year yields fell below 2% in 2020, they have generally drifted higher, with only brief rallies interrupting the ascent. A global government‑debt benchmark remains 19% below its 2020 peak.

Historically, Hoisington concentrated client assets—including the Wasatch‑Hoisington Treasury Fund—in long‑maturity and zero‑coupon bonds to profit from falling yields.

That strategy rewarded the fund during market rallies but left it lagging during sell‑offs. The fund’s average annual return since inception stands at 5.38% as of June 30, yet the past five years have produced an annualized loss of 8.7%.

Assets under management fell to under $2 billion last year, down from roughly $5 billion in 2020.

Comparing this shift to earlier periods, the move mirrors the broader market’s adjustment after the pandemic‑era bond boom, when many managers re‑evaluated duration risk amid rising yields. The pattern suggests that firms once comfortable with ultra‑low rates are now re‑balancing toward shorter horizons.

Yield pressure persists.

Treasury yields face continued upward pressure due to a U.S. capital‑spending surge and increased corporate borrowing for artificial‑intelligence projects, adding to the supply of bonds needed to finance expanding deficits.

Bond investor Jeffrey Gundlach, chief executive of DoubleLine Capital LLP, noted on X that the 30‑year yield “keeps bumping up against this resistance” just above 5%, adding that “even Lacy Hunt has turned bearish, to his credit.”