For more than 30 years, Lacy Hunt was behind one of the US bond market’s most enduring bullish wagers. Now, the 84-year-old economist and his colleagues at Hoisington Investment Management have emerged as some of the most committed bears.

It’s not because of the size of their bet. Hunt works with Van R. Hoisington and his two sons, whose flagship mutual fund holds a relatively small $100 million in assets. It’s the conviction behind the wager that stands out.

As of June, the fund owned just two securities, a Treasury bill and a short-term note, marking an extraordinary reversal for a firm that spent decades loading up on long-term government debt to maximize its profit from falling yields.

The about-face followed a painful four-year stretch when surging yields inflicted steep losses and eroded some of the long-term performance Hunt and Hoisington had built up during the great bond rally that started in the early 1980s. The forces that powered those big gains — globalization, abundant capital and low energy costs — had gone into reverse, Hunt said, and he readily acknowledges he was late in recognizing the shift.

“It was very tough because it meant that we had overplayed the hand,” Hunt said in an interview last week from Austin, where Hoisington is based. Total assets under management at the firm shrank to less than $2 billion last year from about $5 billion in 2020.

This year’s portfolio reset helped cushion Hoisington from the latest bond selloff, a particularly wrenching few months that has seen benchmark yields soar past 5% to reach multi-decade highs. Year-to-date, the Wasatch-Hoisington US Treasury Fund has incurred losses of about 0.4%, compared with a drop of around 2.9% for Bloomberg’s benchmark Treasury index.

Bonds’ woes stem from a mix of variables including rising energy prices, persistent fiscal deficits and an artificial-intelligence investment boom. In Hunt’s telling, those pressures are all part of a structural adjustment that has pushed longer-term “equilibrium” inflation higher to a range of 3.5% to 4.5%, well above the Federal Reserve’s 2% target.

For some, the spike in yields has created a buying opportunity, with bond veteran Jim Bianco among those who see value in the market like they haven’t in years.

Hunt is not in that camp. A self-described “neoclassical” economist, he focuses on the quantity of money and credit, an approach that fell out of favor among much of the profession decades ago. From this perspective, Hunt perceives a risk he says other investors may be underestimating: that the Fed could make the new inflationary regime even worse by allowing money and credit to grow too rapidly.

“I think we’re in the early stages of a significant further rise in inflation,” Hunt said. “The Fed is behind the curve.”Hunt said warnings flashed for him when the central bank abruptly stopped shrinking its balance sheet at the end of 2025. The Fed pivoted to buying Treasuries due in less than a year to bolster money-market rates. While it has stopped purchasing bills to add reserves, it’s still reinvesting proceeds from its mortgage-backed securities portfolio into Treasury bills.

The Fed — and most market participants — viewed the 2025 purchases as a technical operation to smooth money-market functioning, rather than to stimulate the economy. Hunt initially agreed. Then he watched money supply, bank lending and deposits accelerate. To him, that was evidence the liquidity had spilled beyond financial plumbing and into the broader economy, adding inflationary pressure.

“We couldn’t ignore that,” he said. “We all felt that that was a significant event.”So this year, the Wasatch-Hoisington fund slashed its exposure to long-term bonds. By June, its interest-rate risk, or duration, declined to less than one year from a whopping 21 years last September, according to its latest filing.

Hunt does see a potentially sympathetic ear in current Fed Chairman Kevin Warsh, who has put renewed emphasis on money supply and shrinking the Fed’s balance sheet, on top of a strong commitment to taming inflation. But he’s skeptical that Warsh has the broad support at the central bank.

Drawing on economist Milton Friedman’s framework, Hunt argues that money growth, adjusted for velocity — or the speed at which money circulates through the economy — is now about as excessive as it was when Paul Volcker took charge of the Fed during the inflation shock of the late 1970s.

Hunt had a front-row seat to that era. After earning a doctorate in economics from Temple University, the Texas native joined the Federal Reserve Bank of Dallas in 1969 when William McChesney Martin was Fed chairman. He then watched Martin’s successor — Arthur Burns — allow money supply to grow rapidly, which ignited inflation.

Hunt joined Hoisington in 1996. There, he and Hoisington became two of the bond market’s most unwavering bulls, arguing that inflation was in a cycle of decline and rates were headed lower.

For decades, the thesis proved prescient. Ten-year yields descended from an all-time high of nearly 16% in 1981 to 0.3% in 2020, producing a windfall for Hoisington’s unusually large exposure to long-duration government debt. The Wasatch-Hoisington fund returned about 7.8% a year in the two decades through 2020, compared with 4.8% for Bloomberg’s benchmark.

The strategy turned painful when the post-pandemic inflation surge, fueled by massive Fed and fiscal stimulus, brought the bond bull market to an end. The Wasatch-Hoisington fund lost an annualized 8.6% over the past five years, while its assets dwindled from a peak of $560 million in 2020.

“It looked like I was basically finished,” Hunt said. “The March call served me pretty well here, at least.”