Rally in Treasuries Makes a Longstanding Bet Look Good; Texas's Hoisington Investment Management Has Been Wagering for More Than a Decade That Yields Will Fall
The roaring rally in government bonds has thrown Wall Street for a loop, but it comes as no surprise to a group of veteran money managers in Austin, Texas.</br></br>Van Hoisington, president of Hoisington Investment Management Co., and Lacy Hunt, its chief economist, have been wagering for more than a decade that bond yields in the U.S. will fall, thanks to rising debt that they say inhibits economic growth, retards inflation and pushes down interest rates.</br></br>In recent weeks, Hoisington, which manages $5.4 billion invested mostly in long-term U.S. Treasury securities, has looked especially prescient, as the potential for economically damaging deflation in Europe has become a serious concern for investors.</br></br>The yield on 10-year government bonds has tumbled below 1% in Germany for the first time ever and below 2% in the U.S. for the first time in more than a year, a surprisingly low level at a time of healthy employment gains in the U.S. Prices rise when yields fall.</br></br>While many fund managers and analysts have been predicting bond yields would move higher as the U.S. economy picks up steam and the Federal Reserve prepares to wind down its bond-buying stimulus program, Hoisington disagrees. Mr. Hunt says the U.S. debt burden will continue to weigh on rates for many years, pushing bond yields down, regardless of actions central bankers around the globe might take to reflate economic growth.