Veteran bond trader Jim Bianco has adopted a bullish stance on the bond market, marking his first such outlook since 2020. This shift comes as the bond market is currently experiencing a rally, catalyzed by the latest Consumer Price Index (CPI) report. Following this report, traders are now anticipating a roughly 90% chance of a Federal Reserve rate hike in the upcoming week, a significant increase from the approximately 70% probability seen before the inflation data was released. Bianco's sentiment is encapsulated in his statement, "Bond Traders can stop panicking when the Fed starts panicking!" This suggests a belief that the Fed's increasing concern and likely action on interest rates will bring stability or positive movement to the bond market.
This development is noteworthy given recent market conditions. The bond market has been experiencing a significant selloff, and the yield curve, particularly the spread between 10-year and 2-year Treasuries, has been flattening. Last week, this spread narrowed to as little as 17 basis points, the tightest since early 2025. This flattening hints at a potential inversion, a phenomenon that has historically preceded eight recessions since the 1960s, suggesting that bond investors anticipate the Fed's rate hikes could stifle economic growth. The 10-year yield is currently around 5.2%, and the 2-year yield is roughly 4.9%, with the 10-year yield near its highest level since 2007.
Bianco had previously commented on the Federal Reserve's actions, noting on September 16, 2026, that a prolonged rate-cutting cycle had, for the first time in over half a century, resulted in higher long-term interest rates. He highlighted that the market had been signaling to the Fed for two years that its policy was incorrect, and they finally responded. This context underscores the significance of Bianco's current bullish outlook, as it suggests a potential turning point after a period of market instability and critical assessment of central bank policy. Additionally, Bianco previously argued that due to factors like closed borders and low population growth, the labor break-even rate had dropped to approximately 25,000–35,000 jobs per month, making a headline print around 55,000 quite solid.
