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Hoisington cuts duration and warns higher-for-longer Treasury yields
The bond manager moved effective duration from nearly 21 years at end-September to under five years, while citing a higher long-run inflation equilibrium and rising fiscal deficits.
Hoisington Investment Management has turned bearish on Treasuries, according to a Bloomberg report based on the firm’s latest quarterly letter to investors signed by founder Van Hoisington and chief economist Lacy Hunt. The firm warned that larger fiscal deficits and rising capital demands will keep both inflation and long-term Treasury yields under upward pressure over time.
Hoisington said it is cutting portfolio risk in response to a shift it sees as structural rather than temporary, moving from a position with 20-year-plus duration to one with under a year. It highlighted that effective duration was nearly 21 years at the end of September, before falling to under five years.
On inflation, Hoisington now expects a long-run equilibrium range of 3.5% to 4.5%, with risk of episodes above 5.0%, which it said sits above the Fed’s target. The firm also pointed to ballooning government debt and said investors are increasingly demanding a higher risk premium on Treasuries.
The letter added that a capital spending boom tied to AI investment could add additional bond supply, reinforcing the case for higher-for-longer yields. Hoisington’s shift was described as breaking from its multi-decade bullish posture on the long Treasury bond rally.