“Always and never are two words you should always remember never to use.”
A little over a month ago, I noticed the following survey result, in which 100% of economists thought yields would rise within six months.
It's not that I disagreed with the conclusion — to be fair, if I had been one of those surveyed, I would probably have wound up in the unanimous conclusion group as well. But any time 100% of the experts line up on one side of a financial market prediction/expectation, it sets the old spidey-sense tingling.
While these economists have a six-month window for their prediction to ultimately be proven correct, I couldn't help but notice the 10-year Treasury yield ended May at 2.48%. It stood at 2.73% on April 22, the date the article appeared. And it was just over 3% at the start of 2014.
Why have interest rates been falling, despite near unanimity among the experts that they're soon to rise? Barron's Michael Aneiro suggests it's the fact that other foreign bonds are even more absurdly priced, making the relative safe haven of US Treasuries seem like a bargain. For example, he mentions the 10-year German Bund, recently yielding 1.3%. Given the ease of global capital flows, it's no wonder investors are choosing the 2.46% yield of a 10-year Treasury instead. And of course, when the capital flows in, the added demand pushes bond prices up and yields down.
Will it last? 100% of the economists surveyed a month ago say no. I'd be tempted to agree, except for the fact that they seem so sure of the outcome that it makes me doubt.