Market experts surveyed by Bankrate see Treasury yields set to rise modestly over the next 12 months as the Federal Reserve continues to battle inflation and the economy tries to stave off a possible recession. Market Mavens’ first-quarter survey found that market analysts expect 10-year Treasury yields to rise to 3.7 percent per year from now on, up from 3.38 percent at the end of the survey period on March 24, 2023.
The majority of respondents expect interest rates to be higher a year from now, with forecasts ranging from 2.92 percent to 4.5 percent.
“The Federal Reserve has been raising rates for a year now, creating headwinds for the stock market,” said Mark Hamrick, senior economic analyst at Bankrate. “Officials indicate they are close to the end of this tightening cycle. Although uncertainties regarding recession risks and inflation are still high, the economy has proven to be more resilient than expected in these first months of the year.”
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Market Mavens first quarter survey:
- Pros expect the stock to rise 8 percent over the next year
- Survey: Experts expect the yield on ten-year government bonds to be below 4% next year
- Here are the pros’ top investing ideas and how to handle the Fed’s actions
Market analysts see the ten-year interest rate stabilizing and rising slightly over the next twelve months
Ten-year Treasury yields have been below 5 percent for almost all of the last two decades, hitting record lows during the COVID-19 pandemic as the Fed cut rates to support the economy. At its low point, the 10-year yield reached about 0.50 percent in August 2020, but started to rise as the economy recovered. Interest rates rose steadily in 2023 as the Fed aggressively raised rates to combat inflation, and the 10-year yield rose to 4.25 percent in October 2023.
Investment professionals surveyed by Bankrate expect 10-year yields to reach 3.7 percent at the end of the first quarter of 2024, slightly lower than the 3.8 percent level they expected at the end of 2023, as indicated in the previous survey.
The survey period ended just a few days after the Fed raised rates another quarter of a percentage point amid a banking crisis that resulted in the collapse of Silicon Valley Bank and Signature Bank. Fed Chairman Jerome Powell said the central bank remains committed to reducing inflation and does not expect a rate cut this year.
The survey’s estimates roughly track the overall rate increase, with forecasts rising from 2.19 percent in the Q4 2023 survey to 3.8 percent in the Q4 2023 survey.
Is there an attractive investment option in bonds?
With interest rates rising to levels not seen in more than a decade, some investment professionals see an attractive investment opportunity in bonds. Keep in mind that bond prices rise when interest rates fall, and vice versa, so further rate increases could put pressure on bond prices. But with yields around 4 percent and some short-term rates even higher, bonds are more attractive than they have been in a while.
“We would add longer-term fixed income to the rise in yields to maintain those attractive levels,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Marilyn Cohen, CEO of Envision Capital Management, is also positive about bonds and considers their returns less risky than those of dividend-paying stocks.
“Long-term investors should embrace the bond yields currently available,” Cohen said. “Bond yields are competitive with dividend yields and much, much safer.”
Some analysts called on investors to pay attention to the duration risk of fixed income securities, citing the sensitivity of a bond’s price to changes in interest rates. Long-term bonds have a higher maturity (or interest rate risk) than short-term bonds.
“Carefully evaluate duration risk along with the yield on your bonds,” says Kenneth Chavis IV, CFP, senior asset manager at LourdMurray, an asset management firm based in Los Angeles. “The government bonds with a short to medium term pay well.”
Methodology
Bankrate’s Q1 2023 survey of stock market professionals was conducted via an online survey from March 17 to 24. Survey requests were sent by email to potential respondents across the country, and responses were submitted voluntarily through a website. The responses included: Jim Osman, founder of The Edge Group; Louis Navellier, CIO, Navellier & Associates, Inc.; Dec Mullarkey, Managing Director, SLC Management; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Marilyn Cohen, CEO of Envision Capital; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Brad McMillan, head of investments, Commonwealth Financial Network; Clark A. Kendall, CFA, CFP, president and CEO, Kendall Capital.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
