Market experts polled by Bankrate expect Treasury yields to rise slightly over the next 12 months as the Federal Reserve continues to raise rates as part of its plan to reduce inflation. The Fourth-Quarter Market Mavens survey shows that investment professionals see 10-year Treasury yields at 3.8 percent per year from now, up from 3.58 percent at the end of the survey period on December 9, 2023.
Survey respondents were virtually split on whether rates would be higher or lower a year from now. Their specific predictions ranged from 3.1 percent to 5 percent.
Most analysts advised investors to stick to their long-term investment plans, although some suggested increasing bond allocations as interest rates are more attractive than they have been in several years.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s fourth quarter Market Mavens survey:
- Pros expect a modest rally in stocks in the coming year, despite growing fears of a recession
- Ten-year government bond yields will rise even further in the coming year, experts say
- This is when professionals see the next bull market coming and whether crypto can make a comeback
Investment professionals expect ten-year yields to rise slightly in the coming year
Ten-year Treasury yields have been below 5 percent for most of the past two decades, but hit record lows during the COVID-19 pandemic as the Federal Reserve cut rates to support the economy. When rates finally bottomed in August 2020, the ten-year yield had fallen to around 0.50 percent. But rates began rising as the economy recovered and continued to rise alongside the Fed’s rate hikes in 2023.
Market analysts polled by Bankrate expect 10-year Treasury yields to reach 3.8 percent at the end of 2023, up from the 3.6 percent level they expected by the end of the third quarter of 2023, as indicated in the previous survey.
The fourth quarter survey period took place just before the Fed’s last half-point rate hike on December 14. It was the seventh rate hike in a row by the Fed and brings interest rates to a level not seen in about fourteen years.
Estimates have generally tracked the overall rise in interest rates, with expectations rising from 2.19 percent in the Q4 2023 survey to 3.6 percent in the Q3 2023 survey.
What should long-term investors do if the Fed keeps rates high for longer?
While the Fed signals that it may keep rates high for a longer period of time, Bankrate asked market experts what a long-term investor should do and whether that advice would change if it became clear that the Fed was done raising rates. Most analysts said investors should stick to their long-term plans and not react to changes in Fed policy, but some said they see opportunity in bonds that have been out of print for years.
“As the Fed expects to pause next year but keep rates high, returns on fixed income investments are among the most attractive in decades,” said Dec Mullarkey, director of investment strategy and asset allocation at SLC Management. “Allocating more to fixed income should increase the likelihood of a stable income.”
Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute, says investors should take advantage of higher interest rates while they last.
“We advise investors to slowly start extending the duration of their fixed income portfolios to lock in these higher long-term rates,” says Samana. “Once the Fed gets closer to the end, there may be opportunities to take on credit and equity risk.”
But other analysts suggested taking a more measured approach, emphasizing the importance of sticking to your financial plan.
“The average long-term investor should do dollar-cost averaging in the stock market,” says Patrick O’Hare, chief market analyst at Briefing.com. “That takes the guesswork out of when a policy change might occur, but allows you to benefit from stronger returns by acquiring shares at lower prices caused by the spike in interest rates.”
Michael Farr, chief market strategist at Hightower Advisors, says it is normal for long-term investors to experience difficult market conditions and periods of economic growth and expansion. “Focus on the long term and stay the course,” he said.
Methodology
Bankrate’s Q4 2023 survey of stock market professionals was conducted via an online survey from December 1 to 9. 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; Dec Mullarkey, Managing Director, SLC Management; Sam Stovall, chief investment strategist, CFRA Research; Michael Farr, CEO, Farr, Miller & Washington; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Patrick J. O’Hare, chief market analyst, Briefing.com; Chuck Carlson, CFA, CEO, Horizon Investment Services; Louis Navellier, CIO, Navellier & Associates, Inc.; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Brad McMillan, head of investments, Commonwealth Financial Network; Marilyn Cohen, CEO of Envision 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.
