Investment experts consulted by Bankrate expect government bond yields to fall over the next twelve months, as the interest rate hikes by the Federal Reserve are likely to be largely behind us. Bankrate’s third-quarter Market Mavens survey shows that market professionals expect 10-year Treasury yields to fall to 4.36 percent annually from now on, down from 4.59 percent at the end of the survey period on September 28, 2023.
Most respondents expect interest rates to be lower a year from now, with forecasts ranging from 3.4 percent to 5.25 percent.
“One big question is whether the era of super-low interest rates is over and whether interest rates will peak,” said Mark Hamrick, senior economic analyst at Bankrate. “There are huge implications at both macro and micro levels, including companies, central banks, governments and individuals.”
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Market Mavens Survey for the third quarter of 2023:
- Survey: Despite economic uncertainty, experts expect stocks to rise 6% in the coming year
- Survey: Market professionals see 10-year government bond yields falling in the coming year
- Poll: Will Changing Fed Policy and the 2024 Election Help or Hurt Stocks? Here’s what top market analysts say
Analysts see ten-year yields falling over the next twelve months
Ten-year Treasury yields have been below 5 percent for most of the past two decades, hitting record lows during the COVID-19 pandemic, when the Fed sharply 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. At the beginning of October 2023, the ten-year interest rate rose to almost 4.9 percent.
Investment professionals surveyed by Bankrate expect 10-year yields to reach 4.36 percent at the end of the third quarter of 2024, up from the 3.58 percent level they expected at the end of June 2024, as indicated in the previous survey.
The survey period ended after the Fed left rates unchanged at its September meeting, but signaled rates may have to remain higher for longer than previously expected.
The survey’s estimates have generally tracked the overall increase in interest rates, with forecasts rising from 2.19 percent in the Q4 2023 survey to 3.58 percent in the Q2 2023 survey.
Some analysts see income opportunities in bonds
Interest rates have risen significantly in recent years as the Fed has tried to slow the economy and reduce inflation. But with the end of interest rate hikes possibly in sight, some investors think bonds are attractively priced.
“With the advent of higher interest rates, there are finally some more attractive income-oriented alternatives that carry less risk and offer the opportunity to better balance and reduce risk in investment portfolios,” said Patrick J. O’Hare, principal market research. analyst at Briefing.com.
“We think there will be at least one more rate hike, and that cuts will be slow after that,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “We favor bonds and commodities over equities, while favoring the short- and long-term parts of the fixed income curve.”
Dec Mullarkey, managing director at SLC Management, sees a dilemma for fixed income investors. Should you lock in a higher interest rate on long-term bonds, but run the risk that interest rates will fall further if bonds continue their rise? Of course, those same long-term bonds would get a boost if interest rates were to fall.
“In the absence of a target term or strong belief about interest rate movements, a reasonable response is to spread your investment across a mix of maturities,” says Mullarkey. “This tiered approach will provide a decent income and the opportunity for profit if interest rates move in your favor.”
Methodology
Bankrate’s Q3 2023 survey of stock market professionals was conducted via an online survey from September 21 to 28. Survey requests were sent by email to potential respondents across the country, and responses were submitted voluntarily through a website. The answers were: Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Sonu Varghese, Ph.D., global macro strategist, Carson Group; Dec Mullarkey, Managing Director, SLC Management; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Marilyn Cohen, CEO of Envision Capital; Clark A. Kendall, CFA, AEP, CFP, president and CEO, Kendall Capital; Robert A Brusca, Chief Economist, Fact and Opinion Economics; Patrick J. O’Hare, Chief Market Analyst, Briefing.com; Kenneth Chavis IV, CFP, senior wealth advisor, Versant Capital Management; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Brad McMillan, head of investments, Commonwealth Financial Network; Michael K. Farr, CEO, Farr, Miller & Washington; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services.
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.
