The Case for Buying 30-Year Treasuries

You have to be brave to invest like Van Hoisington and Lacy Hunt of Hoisington Investment Management. The two have been expecting a a deflation and significant decline in interest rates for some time. That’s why the holdings in their mutual fund primarily have been long-term treasury bonds. There have been some hiccups along the way, but they’ve generally been right and have been very good to their investors.

Are they ready to declare victory and change their outlook? Not yet. In their latest quarterly commentary for investors, Hoisington and Hunt make the case that treasury long-term rates can fall even more and generate capital gains for their investors. They accumulate several academic studies to argue that substantial debt overhangs lead to low economic growth; that when government grows large relative to GDP, growth is slow; and high and growing government debt also leads to slow growth. Slow economic growth means stable or declining rates. Hoisington and Hunt expect growth to remain low and interest rates to continue to decline.

It is often said
that economic conditions would have been much worse
if the government had not run massive budget deficits
and the Fed had not implemented extraordinary policies.
This whole premise is wrong. In all likelihood the
governmental measures made conditions worse, and the
poor results reflect the counterproductive nature of fiscal
and monetary policies. None of these numerous actions
produced anything more than transitory improvement
in economic conditions, followed by a quick retreat to
a faltering pattern while leaving the economy saddled
with even greater indebtedness. The diminutive gain
in this expansion is clearly consistent with the view
that government actions have hurt, rather than helped,
economic performance.