Why Macro Strategist Jim Bianco Prefers 2-Year Treasury Notes Over Nasdaq Composite

Jim Bianco, the President of Bianco Research LLC, reportedly said he would choose two-year treasury notes over the Nasdaq Composite index, given the attractive yield and the uncertainty surrounding the economy. Bianco also stated the next rate hike is going to be determined by what would be the fallout of the ongoing banking crisis.

What Happened: "The two-year has had its worst year ever and it’s still outperformed the Nasdaq over the last 18 months. Now that the two-year is giving me over a four percent yield, I would probably pick that going forward from here because I am not sure that the economy is ready to turn around if we’re facing a credit crunch," Bianco told CNBC.

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Major Wall Street indices closed at least 1% higher on Wednesday. The SPDR S&P 500 ETF Trust SPY closed 1.45% higher while the Invesco QQQ Trust Series 1 QQQ gained 1.82%.

On Lending: Speaking on the current banking crisis, Bianco said he believes lenders would be unwilling to shell out loans actively and that could put brakes on the economy.

"Are we going to continue to see some kind of a credit contraction because banks cannot trust their deposit base? I happen to be in that camp that the deposit base is now unsure for the banks. They’re not going to be as willing to hand out loans and that’s going to lead to a broader and faster slowdown in the economy," Bianco stated adding that the Fed won't hike rates in such a situation.

However, the market expert noted that if he's wrong and the economy becomes overstimulated, the central bank would be prompted to hike rates aggressively.

"They’re going to go right back to where they were in the beginning of March and be looking for 6% or more. So, expect extreme volatility in the bond market which is what we’ve had. Given all of that I think that the thing that is most at risk is risk markets like credit and like stocks and that they’re going to be really struggling in this environment even though they haven’t been for the last few weeks," Bianco said.

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