Experts See 10-year Treasury Yield Below 4% Over The Next Year

Market experts surveyed by Bankrate see Treasury yields increasing slightly over the next 12 months, as the Federal Reserve continues to fight inflation and the economy tries to fend off a possible recession. The First-Quarter Market Mavens survey found that market analysts expect the 10-year Treasury yield to climb to 3.7 percent a year from now, up from 3.38 percent at the end of the survey period on March 24, 2023.

The majority of the survey’s respondents expect 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 interest rates for a year now, creating headwinds for the stock market,” says Mark Hamrick, Bankrate’s senior economic analyst. “Officials are signaling they are close to the end of this tightening cycle. While uncertainties are still elevated involving recession risks and inflation, the economy has proven more resilient than expected in these early 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:

Market analysts see 10-year yield stabilizing, rising slightly over the next 12 months

The 10-year Treasury yield has spent nearly all of the past 20 years below 5 percent, reaching record lows during the COVID-19 pandemic as the Fed cut rates to support the economy. At its bottom, the 10-year yield hit about 0.50 percent in August 2020, but began to rise as the economy recovered. Rates rose steadily throughout 2022, as the Fed aggressively hiked rates to combat inflation, and the 10-year yield soared to 4.25 percent in October 2022.

Investment professionals surveyed by Bankrate expect the 10-year yield to be 3.7 percent at the end of the first quarter of 2024, down slightly from the 3.8 percent level they expected it to reach at the end of 2023, as indicated in the previous survey.

The survey period ended just a few days after the Fed hiked interest rates another quarter point, amid a banking crisis that saw the collapse of Silicon Valley Bank and Signature Bank. Fed Chair Jerome Powell said the central bank remains committed to bringing down inflation and does not expect a rate cut this year.

The survey’s estimates have roughly tracked the overall rise in interest rates, with forecasts increasing from 2.19 percent in the fourth quarter 2021 survey to 3.8 percent in the fourth quarter 2022 survey.

Is there an attractive investment opportunity in bonds?

With interest rates rising to levels not seen in more than a decade, some investment pros see an attractive investment opportunity in bonds. Keep in mind that bond prices rise as rates fall, and vice versa, so further interest rate hikes could pressure bond prices. But with yields around 4 percent and some short-term rates even higher, bonds are more attractive than they’ve been in some time.

“We would be adding to longer-duration fixed income on increases in yields, to lock in those attractive levels,” says Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

Envision Capital Management CEO Marilyn Cohen also views bonds favorably and views their yields as less risky than those of dividend-paying stocks.

“Long-term investors should embrace the bond yields that are presently available,” Cohen said. “Bond yields are competitive with dividend yields and much, much safer.”

Some analysts called for investors to pay attention to duration risk in fixed-income securities, referring to the sensitivity of a bond’s price to changes in interest rates. Long-term bonds have higher duration, or interest-rate risk, than short-term bonds.

“Carefully evaluate duration risk along with yield on your bonds,” says Kenneth Chavis IV, CFP, senior wealth manager at LourdMurray, a wealth management firm located in Los Angeles. “Short- to intermediate-term treasuries are paying nicely.”

Methodology

Bankrate’s first-quarter 2023 survey of stock market professionals was conducted from March 17-24 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Jim Osman, founder, 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 wealth manager, LourdMurray; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Marilyn Cohen, CEO, 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, chief investment officer, 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 an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

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