Hoisington's capitulation carries symbolic weight well beyond the size of its roughly $2 billion book, given the firm built its reputation calling the multi-decade decline in yields correctly. The shift from a 20-year-plus duration position to under a year signals the firm now sees limited near-term case for a yield decline, and its inflation range call, 3.5% to 4.5% with risk of spikes above 5%, sits well above the Fed's target and above what markets have been pricing for years. With Gundlach publicly citing the reversal as validation of his own bearish view, and a capital spending boom tied to AI investment adding fresh bond supply on top of deficit financing needs, the structural case for higher-for-longer yields is gaining broader traction among fixed-income investors.-A firm that built its name calling the decades-long bond rally has flipped bearish, cutting its duration to almost nothing and warning that both inflation and long-term yields are now trending structurally higher.Summary:Hoisington Investment Management, known for a bullish Treasury stance stretching back more than three decades, has turned bearish, according to a Bloomberg (gated) report on the firm's latest quarterly investor letter.Founder Van Hoisington and chief economist Lacy Hunt cited a broader structural backdrop of larger fiscal deficits and higher capital demands as reasons to expect both inflation and long-term Treasury yields to trend upward.The firm sees the long-run equilibrium inflation range migrating higher toward 3.5% to 4.5%, with a significant risk of episodes above 5%.Ballooning debt levels are pushing investors to demand a higher risk premium on Treasuries, creating a less stable rate environment than the steady yield decline seen from 1990 to 2020.The fund's effective duration fell from roughly 20.9 years at the end of September to 4.7 years by end of March and under a year by June 30, versus about six years for its benchmark index.The pivot began in the first quarter after a US attack on Iran in late February drove an oil price surge that lifted inflation expectations and pushed yields higher, with the 30-year yield nearing 5.2% in May, its highest since 2007, and trading around 5.12% Thursday.Assets under management have shrunk to under $2 billion from about $5 billion in 2020, with the fund posting annualized losses of 8.7% over the past five years.DoubleLine's Jeffrey Gundlach said the 30-year yield keeps testing resistance just above 5% that seems unlikely to hold, adding that even Hunt has now turned bearish.Hoisington Investment Management, a bond manager that built its reputation on a bullish Treasury stance stretching back more than three decades, has turned bearish, according to a Bloomberg report Thursday on the Austin-based firm's latest quarterly letter to investors.The letter, signed by founder Van Hoisington and chief economist Lacy Hunt, points to a broader structural backdrop of larger fiscal deficits and rising capital demands that the firm says will push both inflation and long-term Treasury yields higher over time. That marks a decisive break from the view Hoisington held for decades, and reflects a wider concern among fixed-income investors that higher and more volatile inflation is becoming a lasting feature of the market rather than a temporary disruption.Ballooning government debt is a central worry. The firm says investors are increasingly demanding a higher risk premium on Treasury securities, producing an interest-rate environment far less stable than the one that prevailed between 1990 and 2020, a period defined by a steady, multi-decade decline in yields that fuelled a historic bond bull market. On inflation, Hoisington now sees the long-run equilibrium range migrating higher, toward 3.5% to 4.5%, with meaningful risk of episodes running above 5%.The shift shows up clearly in the fund's regulatory filings. Effective duration, a measure of how sensitive a portfolio is to yield changes, stood at nearly 21 years at the end of September. That fell to under five years by the end of March and to under one year by the end of June, compared with roughly six years for the fund's benchmark, the Bloomberg US Aggregate Bond Index.The pivot began in the first quarter, when a US attack on Iran in late February triggered a surge in oil prices that stoked inflationary pressures and expectations. Treasury yields climbed as markets shifted from pricing rate cuts to anticipating hikes, with the 30-year yield approaching 5.2% in May, its highest level since 2007, and trading around 5.12% on Thursday. Some observers see the reversal as coming late, given 30-year yields have drifted broadly higher since touching record lows below 2% during the pandemic in 2020, with only occasional rallies interrupting the climb.The strategy of concentrating client assets in long-maturity and zero-coupon bonds made Hoisington a standout performer during rallies but a heavy laggard during selloffs. The fund's average annual return since inception stands at 5.38% as of June 30, though the past five years have produced annualized losses of 8.7%, and assets under management have shrunk to under $2 billion from about $5 billion in 2020.Yields continue to face upward pressure from a broader capital spending boom, with companies borrowing heavily to fund artificial intelligence investment, adding further supply to bond markets already swelling from government deficit financing. DoubleLine chief executive Jeffrey Gundlach said this week that the 30-year yield keeps testing resistance just above 5% that seems unlikely to hold, adding that even Hunt turning bearish deserves credit as a signal of where the market is heading. This article was written by Eamonn Sheridan at investinglive.com.