WSJ Economists' Forecasts for 10-Year Yields and the FFR

August 14th, 2013

by Doug Short

The yield on the 10-Year Treasury Note closed just off an interim high at 2.73% on August 2nd, which was the start date for the latest Wall Street Journal survey of economists (August 2-6). With the ongoing debate over the direction of Treasury yields, a key issue addressed in the survey is where economists expect the 10-year yield to be across five six-month intervals from December 2013 to December 2015.

The survey was sent to 52 economists, 46 of whom responded, and of the 46, some skipped individual survey questions. Here is a table showing the major response statistics: Low, Median (middle), Average (aka Mean), Mode (most frequent) and High.

As we readily see from the table, the responses for year-end 2013 fit a rather narrow range, with the median and mode only 2-3 bps above the August 2nd close.

But more interesting is where the economists see 10-year yields at the end of 2015. The spread is substantial, ranging from about 60 bps below today's intraday number as I type this to a high of 5.25%. Note, however, that the median and average are close together and a little over one percent above the 2013 year-end forecast.

Of course, a key driver for yield expectations is what the Fed does with the Fed Funds Rate. The current set rate is 0-0.25 percent with the latest effective rate hovering around 0.08.

Here's a closer look at the array of opinions for the end of 2015.

Here is a side-by side showing the high, low and median for the 10-year yield and FFR (Note that I've kept the same 0%-to-6% vertical axis).

I'll close with a table showing the median and mean spreads between the 10-year-yield and FFR forecasts.

The popular financial press keeps hammering the theme of the market's focus on the Fed's timetable for tapering QE, e.g., this intraday item from Bloomberg. However, it's the timetable for backing down on the zero interest rate policy (ZIRP, the 0-to-0.25% Fed Funds Rate) that will be the more compelling driver for the markets and the economy.

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