A longtime bond bull gives up on his trademark trade

Veteran bond investor Van Hoisington built his career making million-dollar bets on long-term U.S. Treasuries. But he threw in the towel on his trademark strategy this year.

The reason for the about-face is a familiar refrain: It’s the economy, stupid.

Since the 1990s, Hoisington, founder of Hoisington Investment Management, was so optimistic on U.S. Treasuries that his go-to trade was buying so-called STRIP bonds—one of the most aggressive ways to bet on-long term U.S. government debt. As the name suggests, the interest portion of a regular Treasury bond is “stripped” out: These notes pay no interest and offer just the principal.

But by March, holdings of these long-dated, zero-coupon bonds were gone from the Wasatch-Hoisington U.S. Treasury fund—which Hoisington oversees as lead portfolio manager. Instead, they had been replaced by short-term government debt.

One key reason: Hoisington expects the Federal Reserve will raise interest rates to fight elevated inflation, a scenario that would obliterate these zero-coupon bonds’s returns. STRIPS—short for Separate Trading of Registered Interest and Principal of Securities—guarantee a windfall when inflation or interest rates drop as bond prices soar (bond yields and prices move inversely). But they usher in brutal losses if rates rise.

“Some large institutions are talking about three hikes this year, we would probably tend to agree with that,” Hoisington told Barron’s in an interview.

The change in outlook has been rapid. At the start of 2026, nearly 61% of the Wasatch-Hoisington U.S. Treasury fund was held in zero-coupon bonds, with maturities ranging from 2047 to 2053.

One argument the firm offered last year was that artificial intelligence was “inherently deflationary,” and poised to render entire sections of the economy obsolete, such as call centers and data-entry operators.

Still, Hoisington’s big STRIPS bet was a somewhat contrarian trade: By then, some of the biggest bulls in the bond world, including DoubleLine Capital’s Jeffrey Gundlach and retired fund manager Bill Gross, were frequently sharing their pessimism on long bonds in interviews. Banks like J.P. Morgan started this year “neutral on duration,” meaning they weren’t willing to bet on Fed’s next move.

The fund’s master plan soon changed as the economy was getting flooded with liquidity—the Fed’s securities purchases at the tail end of 2025 helped banks lend more. In the first quarter of 2026, the banking industry’s annual rate of loan growth accelerated to 7.1%, the fastest rate since early 2023. Then, the Iran war erupted.

“That was enough to throw us over the corner and say, ‘OK, we’re out,’” Hoisington said. “Wars are expensive.”

By the end of March, every zero-coupon position was gone from the fund, according to the firm’s semiannual report. The entire book was rebuilt to include medium-term coupon debt, maturing in 2028, 2031, and 2033. And by June, Hoisington pivoted again, and shortened the fund’s average maturity even further by holding Treasury bills and a few two-year notes.

The portfolio’s shift to mainly T-bills from STRIPS means the fund is no longer putting its fate in the hands of the Fed and can simply enjoy the income from short-term debt.

“We’ll be in T-bills for an extended period of time,” Hoisington told Barron’s. “Bills is where you actually make money.”

The fund’s shrinking duration also shows its reduced exposure to interest-rate risks. The fund’s effective duration collapsed to 4.7 years at the end of March, and was pared further to under one year, as of June 30. That’s a sharp drop from duration of 20.88 years as of September 2025. The higher the duration, the higher the rate risk: For every year of duration, a 1% rise in interest rates cuts a bond’s price by roughly 1%.

The fund is down 0.8% this year versus a 0.2% loss clocked by its benchmark Bloomberg U.S. Aggregate Bond Index. It has enjoyed an average annual return of 5.4% since its 1986 inception, although over the last five years, it is down 9.3% annually on average, the latest Morningstar data show.

Investors should take note of this fund’s pivot: Remember, a 10-year note gives you about 0.6 more percentage points in yield than a one-year bill—but nine extra years of risk.

Write to Karishma Vanjani at [email protected].