Jim Bianco: Why I’m Finally Buying Bonds After Six Years

WisdomTree Bianco Total Return Fund

• Jim Bianco · Bianco Research, L.L.C.Bullish

  Holds AI-linked convertible bonds via WTBN and expects that space to rise despite recent losses.

  WTBN, the ETF tracking Bianco's index, has about a 5% weighting in convertible bonds, and about 40% of those convertibles are tied to the AI story. He concedes the space has done poorly in recent weeks. He still owns a position in convertibles, about 5% of the index with roughly 40% of that in AI-related issues, and believes the space will go up. He is not buying the worst CCC AI credit, but he holds the broader AI convertible exposure.

  “I do own a position in convertible bonds. It's a 5% position in the entire index, and 40% of the 5% is in AI related. ... I do think that that space will go up.”at 1:04:55

CoreWeave

Across the shows: 11 speakers in other episodes, 3 bullish and 9 bearish calls, past 30 days

• Jim Bianco · Bianco Research, L.L.C.Bearish

  Would not buy CoreWeave's distressed bonds at a 15% yield; he'd sell the worst CCC credit.

  Bianco calls CoreWeave one of the CCC 'problem children' driving high-yield spread widening. Jack notes its bonds, which raised money at roughly 9-10%, now yield about 15% after selling off. Bianco says the company is over-levered and refinancing is getting harder as rates rise. Hyperscaler debt should earn more than distressed issuers, so if companies like CoreWeave can't afford their rates they go to 'detention'. Asked whether he would buy the 15% bonds, he says no. He would be a seller of the worst problem child, though he doesn't think every CCC issuer is bad.

  “the worst problem child in that space, would I buy that right now? Probably not. Yeah, okay, I'm a seller of the worst problem child.”at 1:05:19

US rates & the Fed

• Jim Bianco · Bianco Research, L.L.C.

  Warsh is right to drop forward guidance, but the market now reads random Fed speakers as guidance.

  Bianco applauds Fed Chair Kevin Warsh for dropping forward guidance. He argues that forward guidance caused the 2021-22 mistake, when the Fed called inflation transitory and waited until March 2022, when inflation was 8.5%, before hiking. He also cites the 2024 cut as a case where guidance worked. Without guidance, markets now treat speeches by Williams, Jefferson and Waller as signals. The probability of an October hike swung from 55% after CPI to 13% within days, which shows the confusion. Bianco says the Fed has no conviction for the market to rely on.

  “I actually applaud him. I actually am a fan of getting rid of forward guidance.”at 24:28

• Jim Bianco · Bianco Research, L.L.C.

  The Fed should raise rates toward a 5-6% neutral level, so bond markets don't overshoot doing its job.

  Bianco argues the appropriate policy rate depends on inflation plus real growth. With solid real growth, the neutral rate is 5-6% and should be higher than current policy. He says the Fed has the wrong short-end rate, so the bond market has to overshoot on long yields to correct it, risking confiscatory yields. Raising rates toward neutral would calm long-end volatility and avoid that overshoot. He compares letting the bond market do the Fed's work to bringing in a blowtorch to fix termites, when traps would do.

  “The fastest way to get them down? Raise rates. ... If the Fed would raise rates to get them to that, nearer to that neutral rate of a five to 6% economy, then bond traders don't have to think about overdoing it.”at 29:44

• Jim Bianco · Bianco Research, L.L.C.

  The push for 0-1% rates and bond buybacks is financial repression; 2010s zero rates were abnormal, 5% is normal.

  Bianco argues that the president wants the funds rate between zero and one, and that Treasury Secretary Bessent wants financial repression via bond buybacks. Using history, from Homer and Sylla to Chancellor and Wigglesworth, he says negative rates had no precedent in 5,000 years. He therefore treats 2010-2020 as the anomaly and 5% rates as normal. Asking when rates will break the economy assumes zero rates were normal, which he rejects.

  “The president wants the funds rate between zero and one. ... He's arguing, I am the house. And that means he's ready to do bond buybacks or other things that he could do to financially repress interest rates.”at 32:18

• Jim Bianco · Bianco Research, L.L.C.

  Warsh's lack of forward guidance adds a rate risk premium, but he isn't a sock puppet; guidance should go.

  Warsh is not giving the forward guidance that Powell, Yellen and Bernanke gave, so the market finds him hard to read. That uncertainty adds a higher risk premium to rates. Bianco says that premium is not the worst outcome. He argues forward guidance has caused about as many problems as it has solved, and he is a fan of getting rid of it. He credits Warsh for not being a puppet of the president.

  “Yes, to his credit. It's hard to get a read on him because he's not giving that forward guidance, right? ... it caused as many problems as it solved, and that's why I'm a fan of getting rid of it anyway.”at 40:37

• Jim Bianco · Bianco Research, L.L.C.

  Near-zero rates create zombie firms and speculative bubbles; rates should track nominal growth, near 5%.

  Bianco argues that too-low rates are as damaging as too-high rates. If Trump gets the 0-1% rate he wants while the economy grows about 5%, below-average investments survive on cheap money. That is what produced zombie companies and the jobless recovery of 2010-2015. Cheap money also invites carry trades that create speculative excess, malinvestment, bubbles and inflation. The right rate tracks nominal growth, so with 5% growth rates should be around 5%. Zero is the abnormal level, not the normal one.

  “The perfect interest rate is how fast is your economy growing nominally. If it's growing at five, it should be five.”at 44:44

• Jim Bianco · Bianco Research, L.L.C.

  Trump will likely blame the board first, then turn on Warsh if the Fed keeps hiking.

  Trump is currently blaming the board, including pushing to fire Lisa Cook and Jay Powell, rather than Warsh, so Bianco doesn't expect an immediate break. He points to 2018, when Trump praised Powell while the Fed hiked, then turned on him after a hawkish Jackson Hole speech. Bianco expects a similar path with Warsh: patience runs out if the Fed keeps raising rates, and Trump eventually turns on him.

  “Probably not immediately because listen to what he's been saying. He's blaming the board. ... But we'll eventually get there if they keep raising rates, and I think they should.”at 47:13

• Jim Bianco · Bianco Research, L.L.C.

  Fed funds fair value is about 4.5%, so roughly three more rate hikes are needed.

  Bianco estimates the fair value of the fed funds rate at about 4.5%. From the current level, that means roughly three more hikes to get back to fair value. He expects Trump's patience to run out with a chair who keeps raising rates, though initially Trump will blame the board. He argues the Fed chair must be able to handle that pressure, and that a chair who can't should not hold the job.

  “I think the fair value of the funds rate's four and a half ish percent. That means we need three more rate hikes in order to just get back to fair value.”at 48:36

US Treasuries & yields

• Jim Bianco · Bianco Research, L.L.C.

  Bonds are no longer expensive; 5%+ yields match growth, so he has moved into longer-duration Treasuries.

  Bianco argues yields should be set by expected growth plus inflation. He expects roughly 2% real growth and about 3% inflation, so nominal growth of 5-6%. On that basis, the 5%+ yields across the curve are the appropriate level, not expensive. He became constructive on bonds for the first time in six years and stepped up into longer-maturity bonds to capture those yields. He acknowledges rates could go higher and that this is a risk, but judges the risk-reward finally favorable. He notes that a negative 10-year bond return would require 14-15% 10-year yields within five to seven years, which he sees as very unlikely.

  “I'm not arguing that bonds are cheap. I am arguing that they are no longer expensive.”at 1:59

• Jim Bianco · Bianco Research, L.L.C.

  US yields above other countries reflect stronger growth; yields are set by growth, inflation and supply.

  Sovereign yields are set by expected growth, expected inflation and how much supply or deficit the government pushes into the market. Given those factors, US rates should be above most other countries'. Higher US rates are not a problem, because they mean a stronger economy that can afford to pay them. Lower rates elsewhere signal weaker economies.

  “But yes, so your interest rate is set on expectations of growth. ... That's what sets your interest rate. ... It means we have a stronger economy.”at 38:58

US inflation

• Jim Bianco · Bianco Research, L.L.C.

  US inflation is stuck near 3% and cannot return to 2% because goods deflation has ended.

  From 2001 to 2020, China's WTO entry and cheap imports produced goods PCE inflation averaging about -0.5% a year. Services inflation of about 2.5% was offset by that goods deflation, leaving overall inflation near 1.6-1.7%. Since COVID, deglobalization, tariffs, wars and supply-chain shocks have pushed goods inflation to about +2%, and overall inflation to the low 3s. Bianco argues policymakers will not reopen the door to cheap imports, because of the political and manufacturing costs, so goods deflation will not return. Without it, inflation cannot disinflate back below about 3%. He says he is not forecasting inflation of 4-6%, only that the economy is a 3% inflation world.

  “If we're not going back to goods deflation, we cannot disinflate back under, say, 3% on overall inflation.”at 12:57

• Jim Bianco · Bianco Research, L.L.C.

  A wide PPI-CPI gap can lead consumer inflation, but the lag is uncertain and tariff refunds muddy the signal.

  Bianco argues PPI normally says little about consumer inflation, because firms absorb or pass on the small gap between their costs and consumer prices. When the spread is very wide, as now, PPI can be a leading indicator. He says business inflation is being driven by chip costs and the AI build-out, plus diesel. The timing is uncertain, though, because some prices pass through quickly and others with a long lag. Companies are also receiving tariff refunds after a Supreme Court ruling, which offsets their business inflation for now. Those refunds will not last forever, so consumer inflation will eventually show it. He does not argue that inflation will rise to 4-6%.

  “when the spread gets very wide like it is now, then yeah, it can be a bit of a leading indicator. But the problem with that is the lag on the lead.”at 22:21

Oil & fuels

• Jim Bianco · Bianco Research, L.L.C.

  All-in oil cost is already about $200 a barrel, so crude won't rise much further despite the Iran war.

  Brent is stuck near $100 FOB, but that excludes freight. Before the Iran war, shipping from the Gulf cost about $2-3 a barrel. Now tanker rates through the Strait of Hormuz cost about $35 a barrel, because Iranian strikes on 25 ships since late September have made the market dysfunctional. Escorting the tankers with carrier groups costs taxpayers an estimated $50-60 a barrel. Adding those costs gives an all-in price of about $200, so the embedded costs are already in the price. That is why he doesn't see oil rising much further. The main upside risk is a further escalation of the war pushing crude toward $200 at the wellhead, which he says would hurt bonds but could hurt other assets even more.

  “So all in, price already is $200 a barrel. It's $100 for oil. It's $30 to ship it.”at 15:23

• Jim Bianco · Bianco Research, L.L.C.

  Diesel price spikes will spread through every commodity and store price, feeding into consumer inflation.

  Diesel is the most important channel. Ukraine's strikes on Russian refineries have cut Russia's gas oil exports. European gas oil prices have risen 130-140% since the war began, and Europe is buying from the US, which is driving US diesel prices up. Bianco argues diesel is in every commodity, because mining and harvesting machines run on it, and in every product, because trucks run on it. So diesel prices first show up in energy inflation, then in the costs of everything sold in stores. He says this is already visible in producer price inflation, and that it will eventually filter into consumer prices.

  “Because diesel is in every price. ... It will eventually start to filter in along the way. You're starting to see this to some degree in PPI.”at 18:30

US deficit & government debt

• Jim Bianco · Bianco Research, L.L.C.

  The US will never default; sovereign yields are set by growth, inflation and deficits, not by who has the best credit.

  Bianco disagrees with Trump's claim that the US, as the best credit, deserves the lowest rates. He says that credit-based pricing applies to junk borrowers like Trump's Atlantic City casinos, not sovereigns. Sovereign yields reflect expected growth, expected inflation and the debt-to-GDP deficit. The US has sticky inflation, strong growth and a large deficit, so it should carry higher yields than most countries. He says cutting trade with the 60 lower-yield countries would hurt their growth and push their yields down, not up. He also argues the US will never default, because it can always pay in dollars. The risk is devaluation and inflation instead.

  “The US is never gonna default. Why? Because you said it. We're gonna print up little pieces of paper and hand them to you and say, You got paid.”at 38:19

• Jim Bianco · Bianco Research, L.L.C.

  US won't default; the real risk is currency devaluation and inflation instead.

  The US can always pay its debts in dollars, so outright default is not the risk. The risk is that the dollar falls and the government's paper, which can always be issued, is worth less. That devaluation would bring massive inflation. This is the sense in which the US is a strong credit, rather than one that runs out of dollars.

  “The dollar might go down. That would be massive inflation, but we're not gonna have a default. ... We're always going to have the ability to give you little pieces of paper that says you've been paid”at 38:32

Tariffs & trade policy

• Jim Bianco · Bianco Research, L.L.C.

  Tariffs are a bipartisan choice that ended goods deflation; the US won't return to cheap imports.

  Bianco argues that tariffs are a deliberate policy choice that both parties support. He cites a San Francisco Fed paper finding that most recent goods inflation came from tariffs, and agrees with it, but says the paper's implication to stop tariffs misses the point. Cheap Chinese imports after WTO entry gutted US manufacturing towns and fed deaths of despair, which is why both parties adopted barriers. He cites BYD cars such as the Seal and Seagull, priced at $10,000 to $15,000, which are banned in the US. Letting them in would bankrupt the US auto industry. He says Europe is now seeing the same hollowing out, which is fuelling populist parties.

  “Tariffs are a choice. We want these tariffs. And by the way, so do the Democrats.”at 9:55

European politics

• Jim Bianco · Bianco Research, L.L.C.

  Cheap Chinese imports gutting European manufacturing are fuelling right-wing populist gains in Germany, France and the UK.

  Bianco points to Europe's large volume of BYD cars and says Europe is now learning that cheap Chinese goods are gutting its manufacturing sector. He links this to the rise of right-wing movements: AfD might win in Germany, the National Rally in France, and Reform in the UK. He presents this as the real politics behind the tariff debate, saying the jobs losses have driven voters to these parties. He admits he is somewhat libertarian and that there are pros and cons, but argues the political reaction is the key dynamic.

  “Europe, which has BYD cars all over the place, is now starting to learn that it is gutting their manufacturing sector.”at 12:17

Credit markets

• Jim Bianco · Bianco Research, L.L.C.

  Corporate credit isn't overleveraged; the CCC stress is idiosyncratic, not a broader canary.

  Corporate borrowing peaked near 290% of GDP in 2008 and has fallen to about 140% after an 18-year deleveraging, so corporate credit is far less levered than ever. High-yield spreads have widened to about 360bp, but almost all of the widening is in CCC credits, while BB and B spreads barely moved. The high-yield borrowing that dominates isn't AI-driven; it comes from consumer cyclicals, energy, healthcare and financials. Hyperscalers paying wider spreads is acceptable because they are expected to earn more than distressed issuers. He calls CCC stress detention, not a canary in the coal mine.

  “So I see that as being localized idiosyncratic problems in the credit market. I don't see it as being a broader issue”at 55:47

Enterprise AI adoption & AI software

• Jim Bianco · Bianco Research, L.L.C.

  Financial firms are held back from AI by regulation and underrate its productivity gains.

  Regulated financial firms are under FINRA, and FINRA's stance is effectively 'do what you want' but with heavy penalties if an AI agent causes a trade error or a data leak. That fear has throttled financial firms' AI use. As a result they see AI only for email and search, and believe it is overhyped and a bubble. Bianco says they haven't grasped that AI will redefine work, and that the transformation will come once firms are allowed to act on the benefits.

  “everybody in the financial space has been so throttled on AI, I don't think they really understand the power of AI.”at 56:53

AI: overall outlook

• Jim Bianco · Bianco Research, L.L.C.

  AI is as revolutionary as railroads and will revamp the modern economy.

  Bianco calls himself a gigantic AI bull and says the technology is as revolutionary as anything in the last hundred years, comparing it to the railroads. He argues that corporate software spend per computer exceeds the cost of the hardware, so AI replacing that software spend, at a productivity output orders of magnitude larger, should justify the fees. He says the modern economy, where people spend the day in software, will be revamped by AI.

  “the power of AI. I'm a gigantic AI bull. I think it is as revolutionary as the railroads, anything we've seen in the last hundred years.”at 56:59

AI & jobs

• Jim Bianco · Bianco Research, L.L.C.

  AI will change everyone's job rather than eliminate work, but gains may leave low-productivity sectors behind.

  Bianco argues AI will redefine the way work exists, not eliminate jobs. If AI delivers large productivity gains, it will reshape many jobs and sectors. But sectors that can't be AI-enhanced, such as landscaping, construction and small restaurants, won't get 5x productivity. That leaves a 'bottom of the K' that faces unrest, which is why people talk about universal basic income. He cites railroad-era protests as precedent and notes the same pushback is already visible at data centers.

  “we haven't yet made the connection that it's going to redefine the way work exists. Not get rid of work, not unemploy people, just change everybody's job.”at 57:37

AI bubble & tech valuations

• Jim Bianco · Bianco Research, L.L.C.

  AI is in late 1997, not 2000; a bubble is likely but the market can rise a lot more.

  Every technology ends in a bubble, but a bubble only peaks when skepticism disappears and optimism becomes wild. Today there is too much skepticism and not enough compute, and the popularity of critics like Ed Zitron reflects the narrative people want to believe. The better analogy is 1997: Greenspan warned of irrational exuberance at a Nasdaq of about 1,100, yet it rose about 400% to a 2000 peak before busting. Bianco expects a similar rise before any bust, and says the bottom in 2002 was still above Greenspan's level.

  “So yeah, we'll get there. I just don't think we're there now. If you want an analogy, it's 1997 right now.”at 1:02:21

US growth & recession risk

• Jim Bianco · Bianco Research, L.L.C.

  If AI boosts growth, nominal rates could rise to around 6%, straining small businesses and mortgages.

  If AI is adopted and the massive borrowing for AI capex gets done, GDP and nominal growth rise. That could push the government rate to around 6%, and corporate borrowing costs to 8-9%. Businesses that cannot survive those rates, such as the corner grocery store and the local manufacturer, would run into trouble. Higher mortgage rates would also bite in cities where homebuyers don't expect prices to keep rising. The economy would then suffer strain even though the boom is real.

  “That means the GDP is going to go up. That means that nominal growth is going to go higher. That means that maybe the five handle on interest rates might be six.”at 1:07:42