Bonds are still in a bear market, but valuations still look cheap. The problem is determining the current fair value and whether there will be a move toward a new equilibrium. The simplest bond valuation will be real growth plus expected inflation plus any term premium. Expected inflation is above 2% and is unlikely to fall to the target rate. The real GDP is above 2% for the Blue Chip forecast and above 3% for the Atlanta Fed GDPnow forecast. Even if there is no term premium, we are looking at something close to the current 30-year Treasury yield and slightly higher than the 10-year yield.
The only way to pick bonds is to assume a slowdown in GDP and a decline in inflation. This is possible for 2026, but this is not the current environment.
You are making a large macro bet if you think the bear market in bonds will reverse beyond current levels.
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