Longtime bond bull Lacy Hunt turns bearish as inflation fears bite
Hoisington’s Lacy Hunt says inflation may settle higher, a shift Jeffrey Gundlach flagged as long Treasury yields hover near old highs.
By Frankie Delgado · News Reporter
3 min read
Lacy Hunt, one of Wall Street’s best-known believers in long-dated U.S. government bonds, has changed course after more than three decades of bullish calls at Hoisington Investment Management, according to MarketWatch.
The turn is all about inflation. In Hoisington’s latest quarterly review and outlook, Hunt argues that the forces that kept price growth low for decades are fading, leaving Treasury investors facing a tougher world of higher yields and weaker bond prices.
Jeffrey Gundlach, the fixed-income investor often called the “Bond King,” pointed to the shift in a post on X. Gundlach said the 30-year Treasury yield was still pushing close to a two-decade high and added that Hunt had “turned bearish,” giving him credit for the reversal.
MarketWatch reported that Hoisington manages $120 billion in assets. Hunt serves as the firm’s chief economist.
Inflation range moves higher
In the quarterly outlook, Hunt wrote that the long-term inflation backdrop in the U.S. now appears to be moving away from the old 1.5% to 3.5% range and toward a 3.5% to 4.5% range, with a meaningful risk of periods above 5%.
For bondholders, that matters because yields generally rise when investors expect higher inflation. Bond prices move in the opposite direction from yields, so a sustained move higher in long-term rates can hurt holders of existing Treasurys.
Hunt links the shift to what he describes as the breakdown of the disinflationary forces that dominated from 1990 through 2020. MarketWatch reported that Hunt sees deglobalization, heavy government debt and scarcer capital as key drivers behind the change.
The earlier era was shaped by major supply gains, including the fall of the Iron Curtain in 1989 and China’s deeper integration into the global economy, according to the report. Those changes helped lower labor costs, expand supply chains, deliver cheaper goods and support productivity growth.
Trade, AI and debt add pressure
Hunt’s outlook says that setup has shifted. Strategic competition with China, tariffs, “friendshoring” and efforts to localize semiconductor production are reshaping global trade, according to MarketWatch’s account of the review.
Companies are also moving from a “just in time” supply model toward a “just in case” approach, the report said. At the same time, labor-force growth is slowing because of demographics, while investment needs are rising.
Hunt points to artificial-intelligence-related capital spending as part of that demand. Data centers, power-grid expansion, electrification and defense manufacturing all require heavy investment, according to the Hoisington review cited by MarketWatch.
His conclusion: the U.S. economy’s productive capacity may struggle to grow quickly enough to absorb expanding liquidity and credit without creating more persistent inflation pressure.
Debt is another piece of the turn. Hunt has previously argued that rising debt was disinflationary during globalization because servicing that debt pulled income away from consumption and absorbed liquidity, according to MarketWatch. Now, with federal debt rising relative to the economy and fiscal room narrowing, he sees a risk that investors will ask for a higher premium to own government bonds.
The 10-year Treasury yield ended Thursday at 4.57%, up 41 basis points for the year, MarketWatch reported. The 30-year Treasury yield was listed at 5.047%, while the 10-year was shown at 4.516% on the market ticker cited in the report.
This story draws on original reporting from MarketWatch.