The Case for Long Bonds Is Building Again
I warned when bonds were a disaster waiting to happen. Now I think the risk is finally worth the reward.
2001. 2008. 2020.
In every one of those cycles, long-term Treasuries bottomed before the Fed started slashing rates. Yields peaked, growth slowed, and investors who waited for the official pivot missed the early move.
If history holds, this is when you start accumulating — not after the rate cuts, not after the recession headlines, but now.
Three years ago, I said plainly: bonds were a bad bet. Prices were near all-time highs, yields were scraping zero, and the math just didn’t work. That call aged well. Long bonds were one of the worst-performing assets of the last cycle.
But the cycle is turning. Inflation has cooled. The Fed is on pause. Growth is rolling over. And for the first time in years, long-term Treasuries aren’t priced for disaster. They’re priced for doubt — which is exactly when they get interesting.
This isn’t about yield. It’s about macro conditions. And those conditions are beginning to look like every other moment when duration outperformed.
I Called the Top, Here’s Why That Matters
In late 2020, with yields scraping the bottom of a 40-year decline, I wrote something blunt to friends and family:
“Bonds will never again be as expensive as they are today.”
That wasn’t hyperbole. That was math.
After decades of disinflation and falling rates, the 10-year Treasury yield had collapsed to just 0.5% during the depths of COVID panic. Investors were still piling into long-duration funds because that’s what had worked — but the logic had broken. The engine of bond returns had always been falling yields. And yields, quite literally, couldn’t fall much further.
The consequence was baked in. Every incremental rise in rates would crush the value of long-term bonds. And that’s exactly what happened.
Over the next three years, those funds got obliterated. A 1% rise in rates meant a 15–20% drawdown. A 2–3% move — which we got — halved some retirement portfolios built on the old 60/40 gospel. It wasn’t a black swan. It was gravity.
So why revisit bonds now?
Because the inverse is also true.
If the top in Treasuries came when rates couldn’t go lower — then the bottom starts forming when they’ve already risen too far, too fast, and the conditions that drove the selloff begin to reverse.
That’s where we are now.
And it’s why we’re finally willing to accumulate.
What’s Changed Since Then
Three years ago, the risks were one-sided: inflation rising, rates near zero, and the Fed hopelessly behind the curve.
Today, that’s flipped.
Inflation is no longer the fire it was in 2022. It’s now a fading threat. Headline CPI is sitting at 2.4% — almost back to target. Core inflation is still above that, but it’s stable. And most importantly, the underlying forces that drove inflation higher — wage spikes, goods shortages, energy shocks — are unwinding.
The Fed knows it. After hiking aggressively through 2022 and 2023, it paused in early 2025. At the June meeting, Powell made the pivot clear: they’re in “wait-and-see” mode, not in a rush to keep tightening.
Even quantitative tightening — the quiet shrinkage of the Fed’s balance sheet — has been dialed back. Treasury roll-offs were reduced from $25 billion a month to just $5 billion, a move that effectively eases pressure on long-term rates.
Markets are already looking ahead. Futures are pricing in at least two cuts before the end of the year. That doesn’t mean cuts are guaranteed. But it does mean the expectation is shifting — and that’s often all it takes for bond prices to start moving.
Because the turn doesn’t wait for the Fed.
It begins when inflation cools, the Fed pauses, and the market smells the pivot.
We’re there.
Signs of a Slowing Economy
If the inflation backdrop makes long bonds interesting again, the growth outlook may be what makes them compelling.
Start with the leading indicators. The Conference Board’s index has now declined for six straight months — a streak that historically signals recession risk. It fell –0.1% in May after a –1.4% drop in April, pushing the six-month average deep into negative territory.
Beneath that headline are familiar cracks: factory orders weakening, jobless claims rising, new housing permits down. The only recent bright spot was a short-lived stock market rebound, and even that was driven by a tariff rollback, not underlying strength.
The labor market — still officially “healthy” — is softening too. Unemployment is hovering in the mid-4% range. Job growth has cooled. And the number of people collecting benefits is climbing.
Consumer confidence? Falling. Business sentiment? Weak. The manufacturing PMI has slipped below 50 — signaling contraction — and factories are shedding workers.
This doesn’t guarantee a recession. But it does mean the economy is losing steam.
And when growth fades, investors don’t reach for risk.
They reach for duration.
The Yield Curve Is Steepening — That’s Your Cue
For nearly two years, the yield curve has been deeply inverted. Short-term Treasuries yielded more than long ones — a classic warning sign that markets expect trouble ahead.
Now, that’s starting to change.
As of mid-2025, the curve has begun to dis-invert. The spread between the 2-year and 10-year Treasury, which was as wide as –70 basis points, has narrowed to around –15 to –20. It’s still inverted — but the trend has turned. And that turn matters.
Because the last phase of every inversion cycle is steepening.
Not because long yields spike — but because short yields fall faster.
That’s exactly what happens when markets expect Fed cuts. And it’s historically been a green light for long-duration bonds. Before the 2001, 2008, and 2020 recessions, the same pattern unfolded: the curve steepened before the Fed slashed rates, and long bonds rallied hard as front-end yields dropped.
This is the endgame of an inversion — and it’s a powerful setup.
A steepening curve tells you the market thinks monetary easing is coming.
And if that’s true, long Treasuries are exactly where you want to be.
The Auction That Spooked Everyone and What Happened Next
The May 21 auction of 20-year bonds wasn’t great. Bid-to-cover came in weak, demand looked shaky, and yields jumped above 5%. It was the kind of result that gets framed as a warning: too much debt, not enough buyers, the market blinking.
For a few days, that narrative stuck. Yields ticked higher. Commentators resurfaced the usual questions — about foreign demand, fiscal sustainability, the appetite for duration.
Then the next auction came. And the one after that.
On June 11, the Treasury sold $39 billion in 10-year notes. It cleared easily — in fact, the yield came in below where traders expected. That’s a strong bid. The very next day, a 30-year auction followed. Again: solid demand. Not blockbuster, but firm enough that yields dropped by five basis points in the aftermath. If there was real panic in the system, that’s not what it looks like.
What we’re seeing instead is digestion — not rejection. The market absorbed the May wobble, recalibrated expectations, and stepped back in. Yields on the long end have since drifted lower. And that’s telling.
Because if the bond market were truly breaking, auctions would be getting worse. Instead, they’re stabilizing. That’s not noise. That’s support.
You don’t need foreign buyers to carry the whole market. You just need confidence that someone — pension fund, insurance desk, U.S. household — is willing to lock in 4.8% for the next three decades. And right now, they are.
The May scare didn’t derail the turn in Treasuries. It clarified it.
The Playbook Hasn’t Changed, Just the Setup
Every easing cycle looks a little different. But the bond market’s reaction to those cycles? That’s been remarkably consistent.
When the Fed stops hiking and the economy starts to stall, long-term Treasuries usually move first — and fast.
In 2008, the 10-year yield dropped from nearly 4.7% to 2.5%. In 2019, when the Fed cut mid-cycle, it fell from 3.2% to 1.5%. In early 2020, during COVID’s initial shock, it dropped under 0.5%. And in each case, long bonds rallied sharply — not after the Fed moved, but as the market began to price it in.
That’s what makes the current setup so familiar. The Fed is holding, not hiking. Inflation is back near target. Leading indicators are flashing slowdown. And the curve has already started to steepen. All of this is how those past rallies began.
You don’t need to predict the exact bottom in yields. You just need to recognize the pattern — and position before the herd catches on. Here’s how I’m doing it.
Long bonds aren’t a trade on current policy. They’re a bet on where policy has to go if growth slows and inflation stays contained. That’s the bet we’re starting to make.
This Isn’t a Call on Rates — It’s a Shift in Regime
I’m not forecasting the next CPI print or guessing whether Powell cuts in September. That’s noise. What matters is that the direction of pressure has changed.
Inflation is no longer accelerating. Growth is no longer resilient. And the Fed is no longer hiking. That’s a different world than the one that punished bondholders over the past three years.
You don’t need to love long bonds to see their place in this environment. You just need to accept that the risk is no longer all one-sided. Yields are elevated. Duration is hated. And the setup — economically, cyclically, historically — looks familiar.
That doesn’t mean we go all in. But it does mean we stop sitting it out. We called the top when it mattered. Now we’re starting to lean the other way.