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Rising bond yields have sparked a significant shift among investors, moving from stocks to bonds, as the yield on the 10-year U.S. Treasury note recently reached a 16-year high. This shift has been largely attributed to the Federal Reserve’s interest rate hikes since early last year and a robust September jobs report.
Analysts such as Steen Jakobsen of Saxo Bank and Bill Merz at U.S. Bank Wealth Management predict that these rising yields will influence the Federal Reserve’s decisions on interest rates. They foresee potential rate cuts in 2024 due to mounting inflation concerns. This sentiment is echoed by Mary Daly, president of the San Francisco Fed, who confirmed at the Economic Club of New York that the jobs market and consumer prices are key considerations for future policy decisions.
Investors have been advised to consider their cash needs before making investment choices. Greg Vojtanek from Fade In Financial suggests that Treasury bills and high-yield savings accounts have become attractive options due to higher yields. However, Mike Silane from 21 West Wealth Management warns of potential losses for first-time investors in long bonds if rates continue to rise.
David Sekera from Morningstar suggests that the Federal Reserve might start cutting rates as early as next year. Jerome Powell, Fed Chair, reiterated that economic data will guide the Fed’s next move. Matt Sommer at Janus Henderson Investors advises older clients experiencing “statement shock” due to lower bond market prices to leave their bonds alone.
In a recent discussion about the ten-year yield’s value, Bill Gross and Steven proposed a decent value at 5%. Steven acknowledged past errors due to conditions like deficits, an inverted curve, and the Federal Reserve’s inadequate handling of inflation during strong economic times—factors contributing to his valuation piece.
The conversation also touched on the term premium’s surge, reminiscent of 2014’s taper tantrum, signaling a potential market shift and increased bond demand. This surge serves as a term premium capitulation signal. Steven also outlined the stages of rising yields starting from the Federal Reserve’s mismanagement to 75 basis point hikes causing bear flattening and back end flipping. He compared additional yield from bonds to rolling bills, suggesting that bonds are now more lucrative investments.
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