For over 30 years, the "long bond bull market" of U.S. Treasuries has rarely changed direction. Hoisington warns that the long-term bond bull market in the United States may be coming to an end.

Hoisington Investment Management Co., which has long been bullish on U.S. Treasury bonds, has now rare changed its stance. The company stated in its latest quarterly investment report that due to structural factors such as the continuous expansion of the U.S. fiscal deficit and increasing capital needs, U.S. inflation and long-term bond yields may continue to rise in the future, indicating a fundamental shift in the long-standing bull market for U.S. bonds. The latest report, co-written by founder Van R. Hoisington and chief economist Lacy Hunt of Hoisington Investment Management based in Austin, Texas, pointed out that larger fiscal deficits and continuously increasing financing needs are reshaping the bond market landscape, and it is expected that future inflation and long-term U.S. Treasury bond yields will be on the rise. This viewpoint marks a significant shift in the investment philosophy of the institution. For over 30 years, Hoisington has been one of Wall Street's most steadfast bulls on U.S. bonds, consistently betting that long-term U.S. bond yields would fall, gaining widespread attention in the market. The report pointed out that the ever-expanding U.S. debt is prompting investors to demand higher risk premiums to hold U.S. Treasury bonds. This means that the U.S. interest rate environment is no longer the same as the period from 1990 to 2020, when yields continued to decline and the long-term bond bull market continued. At the same time, Hoisington expects that the long-term equilibrium inflation level in the U.S. is moving towards the range of 3.5% to 4.5%, warning of the risk of inflation exceeding 5% in the future. This assessment is also reflected in its portfolio adjustments. Regulatory filings show that as of the end of September last year, the effective duration of the fund's investment portfolio was as high as 20.88 years; by the end of March this year, this figure had dropped significantly to 4.7 years, and by June 30, it had fallen to less than 1 year. In comparison, the average duration of the Bloomberg U.S. Aggregate Bond Index is currently around 6 years. Effective duration is an important indicator of how sensitive bond prices are to changes in interest rates, with a shorter duration indicating a lower risk exposure to rising interest rates in the investment portfolio. Hoisington began adjusting its strategy in the first quarter of this year. At that time, after the U.S. launched a military strike on Iran at the end of February, international oil prices soared, and market expectations for inflation and further tightening of monetary policy by the Federal Reserve quickly increased, with U.S. bond yields subsequently rising. Data shows that the yield on U.S. 30-year Treasury bonds briefly approached 5.2% in May of this year, reaching the highest level since 2007. As of Thursday, this yield is still around 5.12%. In fact, since the historic low point below 2% for 30-year U.S. bond yields during the pandemic in 2020, long-term U.S. bond yields have been overall on an upward trend, with only brief declines in some periods. At the same time, the global government bond index has fallen by about 19% from its peak in 2020. For many years, Hoisington has concentrated client funds in long-term bonds and zero-coupon bonds, betting on continued declining yields. This strategy has performed well in the rising bond market but suffered significant impact during periods of rapid rate increases. As of June 30 this year, the fund's annualized return since inception is still 5.38%, but the five-year annualized loss has reached 8.7%. Meanwhile, the company's assets under management have decreased from around $5 billion in 2020 to less than $2 billion last year. Hoisington believes that the continued boom in capital spending in the U.S. will continue to put upward pressure on long-term rates. On one hand, investments in artificial intelligence (AI) are driving rapid growth in corporate financing needs; on the other hand, the continuous expansion of the U.S. government's fiscal deficit also requires issuing more government bonds for financing, collectively pushing up bond supply. Jeffrey Gundlach, CEO of DoubleLine Capital and known as the "new bond king," recently stated that the continued approach of the 5% key resistance level for 30-year U.S. Treasury bond yields looks "difficult to sustain in the long term." He also pointed out that even Lacy Hunt, who was long bullish on U.S. bonds, has now turned bearish, indicating a significant change in the market environment.