Wall Street is starting to "bottom fish" US bonds.

The bear market for bonds doesn't seem to be over yet. The strong US economy and labor market have forced investors to face the prospect of the Federal Reserve's "higher and longer" monetary policy. For months, US bond prices have continued to plummet, and this week the benchmark 10-year US bond broke through the psychological barrier of 5% for the first time since 2007.

But bold asset management institutions have already begun planning for the future. According to media reports, large institutions including Vanguard, Pimco, and BlackRock are bottom-fishing in US bonds, betting that the US economy is about to slow down and the bond market's pain is nearing its end.

Data released this week showed that the annualized GDP growth rate in the third quarter of the United States was 4.9%. However, many investors believe that the soaring bond yields have pushed up borrowing costs, and it is impossible for the US economy to continue to maintain high-speed growth. When the economy slows down, it will be the moment for bonds to rebound from the bottom.

Just at the beginning of the year, the US bond market experienced a bear market that only occurs once every forty years. Since April, a series of regional bank failures have triggered credit tightening and recession warnings, and the Bloomberg US Treasury Bond Index has been falling all the way. At the same time, the yield on 10-year Treasury bonds has soared from a low of 3.25% in April to over 5%.

A bond yield of around 5% provides investors with the highest source of bond income since 2007, helping portfolios be more resilient when risk assets are under pressure.

Amy Xie Patrick, Head of Income Strategies at Pendal Group, told the media that she is optimistic about bonds given the current yield. She believes that the possibility of inflation and economic growth accelerating again is unlikely.

Mike Cudzil, portfolio manager at bond giant Pimco, also told the media:

"Rising yields will eventually slow economic growth. We are prepared for victory once the economy starts to slow down."

This year, analysts and economists have been expecting an economic recession throughout the year, but the economic slowdown has not yet occurred. The relentless rise in yields has punished fixed-income investors who bet that 2023 will be the "year of bonds".

But as the benchmark US bond yield surged past 5%, confidence in a bond rebound began to spread. EPFR data shows that in the seven days ending October 25, a record $5.7 billion flowed into US long-term sovereign debt funds, the highest in history.

Long-term government bonds are traditional safe-haven assets, and buying bonds is usually seen as a safe choice during market volatility and geopolitical instability.

Ales Koutny, Head of Fixed Income at Vanguard International, believes that from a pure risk-return perspective, allocating to bonds makes sense:

"I think the key to bonds right now is that when economic news really turns, such as the turmoil in Silicon Valley banks in March or an economic recession, only bonds can truly protect your capital."