Michael Lebowitz — Bonds To Reverse Soon As Yields Approach "Line In The Sand"?
"I realize that it's the narratives that are the short-term driver of bond yields. Bond yields can go higher from here. I do think that 10-year bond yields at 5% is potentially a line in the sand for both the economy, the stock market, and definitely the Treasury, and possibly the Fed."
One-line take: Lebowitz splits the bond market into fundamentals and narratives. Every fundamental says yields are already too high: core CPI 2.5%, trimmed-mean PCE 2.3% (Dallas Fed 2.28%) and breakevens 2.4–2.5% are all where they were before the Iran war; payrolls keep getting revised and ADP/JOLTS don't confirm; growth runs at about a third of trend; real wages are flat; strip out AI and growth is flat to negative. What is pushing yields up is a stack of narratives — oil, deficits, hyperscaler AI debt crowding out, memory-chip prices, BoJ yen intervention, "cocktail-party inflation," a Warsh Fed that gives no guidance, downgrades. Meanwhile the market has already tightened 50–75bp through the 3–10-year rates that price auto, card, mortgage and corporate loans. He calls the 10-year at 5% a "line in the sand" for the economy, stocks, the Treasury and possibly the Fed — with insurers and pensions likely to step in before the central planners. He does not expect a September hike but, if Warsh hikes, sees cuts in 2027 (agreeing with Darius Dale), and still expects secular lower yields toward the real growth rate over the next couple of years. Action: RIA already holds bonds and wants confirmation before adding; for individuals, buy a 5–7-year bond and hold it to maturity — a "free option" if yields collapse. Timestamps link into the video.
1. Stocks & names mentioned
A rates conversation — the only instruments argued with a view are Treasuries and corporate bonds, neither named by ticker (so they use the hub's theme rows). The single names are illustrations he used to explain narratives and index weighting, not calls. Stance reflects how each was framed in this conversation. Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
| Ticker | Name | Research | View | What he said | At |
|---|
| Government bonds | US Treasuries (10-yr note; 5–7-yr bonds; the 20-yr bond in RIA's 60/40) | — | Positive | The 10-year at 5% is "potentially a line in the sand" and probably near the short-run peak in yield, with an institutional "market put" under it. Fundamentals say yields are already too high. Accumulate patiently: a 5-year at 5% held to maturity is "essentially a free option" — worst case you earn 5% a year, and if yields collapse to 2.5% you sell the bond and buy stocks on sale. | 24:33 |
| Corporate bonds | Investment-grade corporate bonds (5–10-yr) | — | Positive | "A lot of corporate yields are already over 5% because they're at a spread to Treasuries. So you can easily get 5% in good corporate names" — with additional risk. A way to lock in a plan's 5% required return, and a sector RIA may favour if the long end stays pinned. | 25:52 |
"View" is Lebowitz's stance in this conversation (Positive / Neutral / Negative), not a price rating. He also covered the Fed under Warsh, trimmed-mean inflation, the yield curve, midterms and AI's growth/disinflation timing at the macro level (see talking points and the master macro viewpoints). Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
2. Talking points
1:58 Bond fundamentals vs bond narratives
- RIA (with Lance Roberts) has called for lower yields for a while; they were coming down "and then Iran kicked in. Tariffs kicked in."
- Historically fundamentals drive yields — a very high correlation with inflation and inflation expectations — but a narrative, true or false, can take over a market for a while (memory chips, AI, meme stocks, gold, crypto; AMC and GameStop as the extreme case). Today yields and fundamentals have diverged, and the bond market is susceptible to "one story after another."
4:18 Aside: the slides were built with Claude
- A brief tangent on using Claude as a presentation assistant, and a recommendation of Stanford economist Chad Jones's work on how AI will affect the economy (he is writing an article on it).
10:13 The inflation fundamentals are back where they were before Iran
- Core CPI 2.5%; trimmed-mean PCE (the measure Warsh says he prefers) 2.3%; breakeven inflation expectations 2.4–2.5%. "All three of those are where they were before the Iran war started."
- Energy and some goods prices rose on the war, which he hopes is transitory as Hormuz reopens or is bypassed. Breakevens are real money, not a narrative — and they usually run above realized inflation.
12:21 Growth and jobs don't warrant higher yields
- A strong payrolls print last Friday, but after massive revisions "one month does not make a trend," and ADP and JOLTS don't confirm it.
- Averaging recent trends, the economy grows at about a third of its normal rate; real wages are flat or negative; excluding AI, growth is probably flat to negative.
13:17 The narratives pushing yields up
- High oil reigniting inflation; daily deficit stories (more debt for the market to absorb); hyperscalers going beyond their free cash flow into debt and equity markets — crowding out; memory-chip price spikes (Apple raising prices).
- Bank of Japan yen intervention supposedly forcing Treasury sales — debatable, since the Fed runs a repo program with them. "Either way, it's a story."
14:35 "Cocktail-party inflation," no Fed guidance, downgrades
- People confuse the price level with inflation: eggs going from $3 to $6 and staying there for a year is zero egg inflation, even though they cost twice as much.
- Warsh giving no guidance leaves the market "rudderless… without the Fed walking the market on its leash." Some argue credit downgrades deserve higher yields. All contain some truth, all can be debated — while the fundamentals say yields are already too high.
16:25 The market has already tightened for the Fed
- Auto loans, credit cards, mortgages and corporate loans are priced off the 3- to 10-year rates, which have risen 50–75bp — real tightening that takes 3–9 months to show up in the economy.
17:29 10-year at 5% — the line in the sand
- Narratives drive yields in the short run and they can go higher, but 5% on the 10-year is "potentially a line in the sand for both the economy, the stock market, and definitely the Treasury and possibly the Fed" — "don't hold me to it."
- In the short run that may be the maximum upside in yield. Without a real economic shock, yields won't fall quickly: "it would take an event."
19:12 The market put comes before the central-planner put
- Insurers, endowments, pension funds and the largest institutional managers will likely "chomp at 5%" for asset-liability matching; if stocks falter, money that chased 20% equity returns will want the safety of a near-5% bond.
- Bessent has already increased Treasury buybacks; the Fed is less likely to step in because Warsh has been adamant that QE is bad — "but nothing would surprise me… whether it's five or five and a quarter." When the tide turns, narratives flip lower too.
21:25 Bonds after their worst decades — the inverse of the CAPE chart
- A chart of 10-year annualized bond returns: after the pathetic decades (the 1950s, 1861) returns shoot up. With CAPE at ~41 implying roughly zero 10-year equity returns, the juxtaposition is equities at the top and bonds after a horrendous stretch.
- This bond bear was worse because rates were kept low for so long — no coupon to offset the 2022–23 price losses (1950s coupons were 2.5%, not 1.5%). Opportunities exist, "but for the patient."
24:33 The free option in a 5-year bond at 5%
- Buy a 5-year at 5% and the worst case is holding it for five years, getting your money back plus 5% a year. If yields fall to 2.5% while stocks drop 30%, you have "that free option to sell the bond, take your price profit, and now buy stocks on sale."
- "This market feels horrible… and it can get worse," but that is usually when the best opportunities are.
25:52 Institutions are already laddering in; corporates already pay 5%
- An insurer or pension fund doesn't need to wait for 5%: "Let's buy a little bit here. Let's buy a little bit more higher up. Let's ladder into it." The market put is probably already creeping in.
- Many corporate yields are already over 5% at a spread to Treasuries — available now, for additional risk.
26:46 What RIA is actually doing: holding, and waiting for signs
- RIA starts from a good bond position: the main 60/40 carries about 10% cash, a 20-year bond, shorter-term bonds and mortgages.
- Before adding, he wants technical signs the tide is turning, narratives starting to change, and the Fed's path over the next few months. This week's CPI (Friday) and PPI (Thursday): a 0.1–0.2 print would make three benign months in a row, even with oil back in the low-to-mid 90s.
28:42 Buy 4.50 heading to 2.50, not a falling knife at 5
- Owning bonds already, he isn't rooting for lower prices; he wants confirmation the trend has reversed, and there is none yet. He'd rather buy the 10-year at 4.50% with more confidence it is heading to 2.50% than catch a falling knife at 5%.
- The instrument choice stays open: if short yields collapse while the inflation/deficit narrative pins the long end, the 3- and 5-year sectors, corporates or options may be the better expression.
31:11 Warsh's Jackson Hole hawkish pivot — why now?
- Warsh was relatively dovish until Jackson Hole, where he pivoted hawkish — after CPI prints of −0.4 and +0.1/0.2 and a −23,000 payrolls month. He spent a paragraph on inflation detail, including "54% of goods showed price increases above 3%."
32:22 The contradiction: his own preferred trimmed mean says 2.28%
- In Senate testimony and as chair, Warsh said he prefers trimmed means (cut the biggest gainers and losers) and called headline PCE/CPI "rough swag." The Dallas Fed trimmed mean is 2.28% and has been for four or five months; median PCE 2.7%, core CPI 2.5%.
- Counting how many of ~200 goods rose more than 3% ignores weighting: orange juice up 10% barely matters. "The number of items is less consequential than the weighting" — like Nvidia's 8% of the S&P versus the 499th company. Fed research also shows the recent impulse is tariffs, and it is waning.
34:45 Talking tough — and the flattening curve
- The hawkishness lands as Bessent adds buybacks and the 10-year nears 5%; his read is that Warsh is building inflation-fighting credibility.
- Reaction: short rates up, long rates stable, so the curve flattened — the market buys that he cares about inflation. Hiking (especially repeatedly) risks a big policy mistake since the market has effectively hiked already. But standing pat could be read as weak and push the 10-year to 5%.
36:49 Darius Dale's hike-then-cut — a reaction to a supply shock
- Dale's default is a quarter-point hike (maybe two this fall) to establish hawkish credibility and set up cuts into 2027. Lebowitz doesn't disagree: if Warsh hikes, he'll be cutting in 2027.
- What bothers him is hiking into a supply shock: before Iran nobody expected hikes, and employment has weakened since. Ex food, energy and outliers there's no sign of inflation picking up — still above 2% (Beth Hammack's case), "but be careful how you get it down to two."
38:32 No hike in September is his personal call
- Political pressure is hard to gauge: Trump nearly fired Powell for not cutting, so what happens when his new chair hikes a month before the midterms? But with the market at two-thirds odds, "we have to assume they will."
- A hike could get a muted reaction: long yields could fall a little as the market prices further hikes, flattening the curve further. "I think he's trying to talk the talk… and hopefully not have to walk the walk."
40:26 Midterms cut both ways
- Democrats look likely to take the House and could take the Senate; a split Congress could limit spending, but dysfunction isn't good either. Not yet an excuse for higher yields, though it probably will become a narrative.
- What to watch: the next few Fed meetings, how inflation plays out (CPI Friday), and whether the jobs trend is real or a fluke that gets revised lower.
43:06 Still secular lower yields — with AI the complication
- Yes, RIA still expects bond yields to trend down over the next couple of years, "more towards the real growth rate."
- AI will create both growth and disinflation, but timing is the question: right now parts of it are inflationary (memory chips) and data-center building is a big chunk of growth.
45:32 For retirees: buy the actual bond and hold it to maturity
- Bonds belong in a diversified portfolio; how much more is your call. "We've been wrong for the last couple years… recently wrong because of Iran" — patience is required.
- To make holding bonds less stressful, buy a 5- or 7-year bond (the bond itself, not a fund) and tell yourself you'll hold it to maturity: the worst case is 5% a year; if things change, sell for a profit and reinvest.
47:56 Your benchmark is your required return, not the S&P
- Near retirement, ask what rate of return you need to meet your goals. If it's 5%, a 30-year Treasury or a 5- or 10-year corporate bond can lock that in. "My goal isn't to beat the S&P… my wealth benchmark in this example is 5%."
50:29 Financial plans are the north star
- RIA's edge, he says, is financial plans, not his and Lance's portfolio magic: plot the car every five years, the wedding, Europe every other year, and the software gives, say, a 98% chance of success at a 5% return. That required return then drives what to buy.
- Clients can run their own scenarios in RIA's planning software (host Taggart: stress-test "what if my holdings get cut in half").
3. In plain English
A jargon-free summary of the thesis behind each name — what it actually is and why he holds that view. (Plain-language companion to the table above; renders on each ticker's consolidated page.) The single-stock rows are illustrations only and get no block.
Government bonds — US Treasuries Positive
Lebowitz thinks US government bond yields have risen further than the economy justifies. When a bond's yield rises its price falls, so if yields later come down, today's buyers lock in a high income and get a price gain. His evidence: every inflation measure he trusts (core CPI 2.5%, the "trimmed mean" that throws out extreme price moves at about 2.3%, and the market's own inflation forecast at 2.4–2.5%) is right back where it was before the Iran war, and the economy is growing at only about a third of its normal pace.
So why are yields up? Stories: high oil, big deficits, tech giants borrowing heavily for AI, pricier memory chips, Japan possibly selling Treasuries, and a Fed that won't say what it will do. Stories can move a market for a while, but he expects prices to return to the fundamentals eventually. He sees the 10-year yield at 5% as a "line in the sand": pension funds and insurers love locking in 5% to match their long-term obligations, and if yields go that high the stock market is likely to wobble, which sends money back into bonds.
How he'd act: be patient and don't guess the top. For an individual, buy an actual 5- or 7-year Treasury and plan to hold it until it matures. The worst case is earning about 5% a year and getting your money back. If yields collapse and stocks fall, you can sell the bond at a profit and buy stocks cheaply — that is the "free option." For his own firm, which already owns bonds, he would rather add once the trend has clearly turned (say, at 4.5% and falling) than try to catch the exact peak.
Corporate bonds Positive
Companies pay a bit more interest than the government because there is a small chance they won't pay back. With Treasuries near 5%, many solid companies' bonds already yield more than 5%, so "you can easily get 5% in good corporate names" — in exchange for that extra (credit) risk.
That matters for his planning-first approach. If your financial plan says you only need a 5% return to hit your goals, a 5- or 10-year corporate bond can simply lock that return in, with no need to beat the stock market. He also lists corporate bonds as a sector RIA may prefer if short-term rates fall but long-term Treasury yields stay stuck high.
Summary & timestamps derived from the public YouTube video (transcript in transcript.txt) for personal study. Not investment advice. © Thoughtful Money / Adam Taggart for source material.