Episode summary
Will Bond Vigilantes Tank the Stock Market? | Barron's Streetwise
Barron's Streetwise
· · Hosts: Jack · Guests: Jared Woodard
Summary
Jared Woodard argues that rising Treasury yields matter for stocks, but the key danger zone is not 5% on the 10-year; it is closer to 7%. He says 5% is more of a warning shot, while 7% is where higher yields can start to seriously hurt valuations, financing costs, and investor behavior. He points to history, including Japan and past U.S. episodes, to show that the level alone is less important than how fast yields rise and why they are rising.
Woodard says long-term government bonds have been a poor place to hide, with the 20-plus-year Treasury ETF down 40% since summer 2020. He argues the old 60/40 portfolio is vulnerable whether the next regime is higher growth with inflation or higher inflation without growth. Instead, he favors “prudent yield” alternatives such as emerging market debt, high yield and fallen angel bonds, plus real assets like commodities.
He also says the market is still not seeing near-term evidence of a yield spike that would crush stocks. At the same time, he thinks the biggest opportunity is for investors to diversify beyond a single mega-trade, including the AI theme, because history shows productivity booms often benefit consumers more broadly than investors alone.
Key takeaways
- Woodard says 5% on the 10-year Treasury is a warning shot, but 7% is the level that could really hurt stocks.
- He argues that the 20-plus-year Treasury ETF is down 40% since summer 2020, showing long-duration government bonds have not protected portfolios.
- Woodard says the 60/40 portfolio looks ill-suited whether the next regime is higher growth with inflation or higher inflation without growth.
- He favors “prudent yield” exposures such as emerging market debt, high yield, fallen angels, and commodities over long-term government bonds.
- He says investors should diversify across sources of risk and return rather than rely on one mega-trade like AI.
Notable quotes
“I think five is your warning shot and seven is the is is the one that that really hurts”
“the answer has definitely not been long-term government bonds. 20 plus year Treasury bond ETF is down 40% since the summer of CO”
“Whether you think that we're on the cusp of much higher growth and a bit of inflation or higher inflation with no growth, the 6040 conventional asset allocation model”
“If you want fixed income, the great news is there are many places to go in a fixed income universe where you can get meaningful yield, uncorrelated returns”
“In fact, if you and this is just a thought experiment, I'm not sure everyone should go out and do this tomorrow, but if you were to replace the 40% of your portfolio”
How the episode opens
A lot of times those investment booms were to the greatest benefit of consumers or even businesses in the aggregate rather than investors. And if that if that history repeats once again in the next several years, it's going to be um in investors who truly are diversified across sources of risk and return that I think are going to be the ones who are most richly rewarded.
Hello and welcome to the Baron Street Wise podcast. I'm Jack How and the voice you just heard is Jared Woodard. He's the head of the research investment committee at Bank of America.
He's going to be talking with us in a moment about rising bond yields and how high yields have to go before they tank the stock market. Jared has a specific number in mind and he'll talk about whether that will happen. Spoiler alert, he doesn't think so.
also why 6040 investing appears to be broken and what investors should do instead. That's a lot to get to, so I better hurry up and get my aimless rambling out of the way. Let's get into it.
Listening in is our audio producer, Emily Some. Hi, Emily.
Hi, Jack. You have heard, I'm sure, probably just lately, the term bond vigilantes, have you not? — I have indeed. — What comes to mind when I say vigilante? What kind of person do you picture? A good person or a bad person, a hero or a villain?
Tragically misunderstood, but morally gray. — Okay, that's that's like that's kind of a best case scenario for the traditional usage of the word. Sometimes it's just an outright villain like Dexter from TV, you know, the serial killer who killed other serial killers. He was a vigilante, but you know, didn't you kind of come down on his side sometimes?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bond vigilantes
- stock market risk
- wall street research
Watch the episode
Watch “Will Bond Vigilantes Tank the Stock Market? | Barron's Streetwise” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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