Long Time Bond Bull Still Bullish

April 10th, 2021 8:49 pm | by John Jansen |

Hoisington Says Bonds Will Soon Escape ‘Inflationary Psychosis’
2021-04-09 19:18:37.433 GMT

By Elizabeth Stanton
(Bloomberg) — Inflation fears, a key driver of the
Treasury market’s biggest quarterly loss in decades, are a
“psychosis” that will fade away over the course of the year,
Hoisington Investment Management Co. said in its latest
quarterly report.
“Contrary to the conventional wisdom, disinflation is more
likely than accelerating inflation,” the report said. After
moving higher during the second quarter, the annual inflation
rate “will moderate lower by year end and will undershoot the
Fed Reserve’s target of 2%,” and “the inflationary psychosis
that has gripped the bond market will fade away.”
Hoisington, whose leadership includes founder Van
Hoisington and chief economist Lacy Hunt, manages about $5
billion in Treasuries. The firm’s Wasatch-Hoisington Treasury
Fund returned 20% last year, more than any other actively
managed U.S. government bond fund, according to Bloomberg data.
It’s had an annual average return of about 7.5% since its 1986
inception.
While U.S. GDP is likely to grow in 2021 at the fastest
pace since 1984 and possibly since 1950, several factors will
restrain inflation, Hoisington said. They include:
* Inflation is a lagging indicator, reaching lows an average of
15 quarters after recessions end
* Productivity tends to rebound vigorously after recessions
* Supply-chain restoration will be disinflationary
* Pandemic has accelerated technological advancements
* Growth numbers don’t reflect reflect the costs of rampant
business failures

As inflation “is the key determinant for the level and
direction of long term Treasury yields,” yields also tend to
reach cyclical lows long after the start of recessions, with an
average lag of 76 months since 1990, Hoisington said. “While no
two cycles are ever alike, the trend in long bond yields remains
downward.”

To contact the reporter on this story:
Elizabeth Stanton in New York at estanton@bloomberg.net
To contact the editors responsible for this story:
Benjamin Purvis at bpurvis@bloomberg.net
Debarati Roy, John McCorry

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