Financial experts surveyed by Bankrate are predicting a decrease in Treasury yields over the next year, with an interest rate cut expected at the Federal Reserve’s September meeting. According to Bankrate’s Second-Quarter Market Mavens survey, analysts believe that the 10-year Treasury yield will drop to 3.96 percent in the next 12 months, down from 4.34 percent at the end of June.
The majority of respondents in the survey foresee lower rates a year from now, with estimates ranging from 3.40 percent to 4.50 percent.
Mark Hamrick, senior economic analyst at Bankrate, stated, “Higher for longer may well be a reality for interest rates and yields over the next six to 12 months, depending on the durability of the economic expansion.”
Hamrick added, “What’s not to like about a world where savers and investors are both rewarded? That’s a mix that we hadn’t seen for years before outsized inflation forced the Fed to begin tightening, lifting rates and yields.”
Forecasts and analysis
This article is part of a series discussing the findings of Bankrate’s Second-Quarter 2024 Market Mavens Survey:
- Survey: Stocks to gain 4% over the next year
- Survey: Market pros see 10-year Treasury yield under 4% a year from now
- Survey: Best ways to play falling interest rates, elections and AI, according to investing pros
10-year yield expected to be lower over the next 12 months, analysts say
Looking back over the past two decades, the 10-year Treasury yield has mostly remained below 5 percent. It hit a record low of around 0.5 percent in August 2020 during the Covid-19 pandemic when the Federal Reserve reduced interest rates to support the economy. As the economy recovered, the yield began to rise. Throughout 2023, the Fed raised rates more aggressively to combat inflation, leading to a steady increase in yields.
Bankrate’s survey of investment professionals indicates that the 10-year yield is projected to be 3.96 percent by the end of June 2025, lower than the 4.18 percent level expected at the end of March 2025 in the previous survey.
The survey’s projections have generally mirrored the overall trajectory of interest rates, with estimates ranging from 2.4 percent in the first quarter of 2023 to 4.18 percent in the first quarter of 2024.
Analysts see more opportunities in stocks and bonds
Fixed-income investments are currently offering some of the best returns in years, thanks to the interest rate hikes of 2023 and 2023. However, investors should be mindful of potential rate cuts on the horizon and how they might impact fixed-income assets going forward.
Nine out of 10 experts surveyed by Bankrate anticipate a rate cut by the Fed during its September 17-18 meeting. A rate cut could influence how much cash investors hold.
Patrick O’Hare, chief market analyst at Briefing.com, commented, “If (the Fed is cutting) because inflation has moved toward the 2 percent target…sidelined cash will get put to work as money market rates come down.”
However, O’Hare warned that if the rate cut signals economic struggles, stocks could suffer, making Treasuries a more attractive option.
“If rates are coming down because growth is faltering, or we are in a recession, it won’t be good for stocks in general,” O’Hare noted. “In this scenario, there would be opportunity in Treasuries, and cash would be held dear as investors seek to preserve capital.”
The potential for lower interest rates may present an opportunity to purchase longer-term bonds to secure higher yields.
Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, suggested, “We would look at yields on the long end at 4.75 percent and above as an opportunity to extend duration ahead of Fed rate cuts,” referring to longer-dated bonds.
On the other hand, lower rates could attract some investors to shift from bonds to stocks.
“Lower rates and solid growth typically create a compelling opportunity for those holding cash to invest in equities,” said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management.
However, experts like Sam Stovall, chief investment strategist at CFRA Research, cautioned that stock price growth might slow following the first rate cut.
“Stock prices tend to rise at a slower rate after the Fed has cut rates than in anticipation of the first rate cut,” Stovall explained. “Cash and bond holders are likely to maintain their fixed-income exposure rather than increasing their equity positions.”
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Bankrate’s second-quarter 2024 survey of stock market professionals was conducted from June 14-28 through an online poll. Survey requests were sent via email to potential respondents nationwide, and responses were voluntarily submitted via a website. Respondents included: Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Dec Mullarkey, managing director, SLC Management; Patrick J. O’Hare, chief market analyst, Briefing.com; Sam Stovall, chief investment strategist, CFRA Research; Brad McMillan, chief investment officer, Commonwealth Financial Network; Chuck Carlson, CFA, CEO, Horizon Investment Services; Michael K. Farr, president and CEO, Farr, Miller & Washington; Charles Lieberman, chief investment officer, Advisors Capital Management; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Hugh Johnson, chief economist, Hugh Johnson Economics.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Additionally, investors are reminded that past performance of investment products is not indicative of future price appreciation.
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