U.S. 10-Year Treasury Yield Nears Low
Raise your hand if on December 31, 2013 you expected the U.S. 10-year Treasury yield to be hovering near 2.40% at the start of the fourth quarter of 2014. I don’t see many hands raised, including mine.
At the start of the second half, I finally admitted that my expectations for Treasury yields were incorrect. It does not seem that others are doing the same. I found Bloomberg’s recent U.S. 10-year Treasury yield forecast (Figure 1) rather fascinating. Keep in mind, it is a survey of 70 investment bank economists and therefore a very broad measure of expectations.
- Q4 2014 10-year average yield consensus forecast is 2.79%
- Q4 2014 lowest forecasted yield is 2.35%!
- Q1 2015 average yield consensus forecast is 2.98%
- Q1 2015 lowest forecasted yield is 2.39%
- Q4 2015 average yield consensus forecast is 3.44%
Figure 1: U.S. 10-Year Yield Forecast
In 2014, the 10-year Treasury yield has ranged from a high of 3.05% in January to a low of 2.30% in August. As the FOMC has tapered its asset purchases, the yield has moved lower and lower. The past three months have been the strongest quarter for U.S. manufacturing since the first quarter of 2011. Last Friday’s 5.9% unemployment rate was the lowest since before the 2008 credit crisis. Yet, Treasury yields remain anchored at the lower end of this year’s trading range.
Figure 2: U.S. 10-Year Treasury Yield, Past Year
On September 17, my good friend Dave Albrycht, CIO of Newfleet Asset Management, appeared on CNBC with an incredibly confident expectation for 10-year Treasury rates to stay between 2.25% and 2.75% for the balance of 2014. It appears that Dave understands the reality of the current rate environment, whereas the vast majority of the investment community are focused on perception, not reality, in their yield forecasts.