Economist are Confused About the Direction of the 10 Year Treasury Note
Last Month, the Wall St. Journal surveyed several Economists and asked them to predict that the yield on the benchmark 10-year Treasury note at the end of 2020. The response was an average forecast of 1.97%, only modestly higher than 1.786%, where the note closed Wednesday. Some predicted yields above 3% while others said it would end 2020 slightly above 1%.
If you are an analyst at an investment bank, “no one will ever fault you for being an optimist,” said Peter Atwater, a finance professor at The College of William & Mary. “Higher yields represent optimism.” Out of the last 10 years economists surveyed predicted higher yields than actual in 8 of them.
“The policy outcomes that could come out of the 2020 election are historically divergent—it’s probably about 40, 50 years since we’ve seen the potential for such a wide range of policy outcomes,” said Mike Pyle, global chief investment strategist at BlackRock Inc. “That is a naturally uncertain environment for investors.”
“Most people—and I’m including myself—thought we’d see a trade deal by now,” said Steven Blitz, chief U.S. economist at TS Lombard. This year’s disappointment notwithstanding, Mr. Blitz is forecasting that talks between the U.S. and China will lead to a preliminary agreement.
A surge in business and consumer confidence stemming from progress on trade is likely to help spur growth next year, leading to improved risk appetite among investors and reducing the demand for the safety of government bonds, Mr. Blitz said. He said he is predicting the 10-year yield will climb to about 2.5%.
“With plenty of fits and starts and histrionics along the way, you’re moving from disorder to order,” Mr. Blitz said regarding trade.
While job growth in recent months has exceeded expectations, Lindsey Piegza, chief economist at Stifel Financial, is skeptical that the Fed’s three rate cuts this year have done enough to sustain the economy into 2020. She points to the slowing pace of wage growth as a key sign of a slowdown. She is predicting the 10-year Treasury yield will fall to 1.55%.
“My biggest concern is prolonged anemic growth,” Ms. Piegza said.