Best Bond Forecasters of 2023 Say Rally Is Doomed to Fizzle

The most accurate US bond forecasters of 2023 say the strong year-end rally won’t stretch into 2024.

Goldman Sachs Group Inc.’s Praveen Korapaty, the bank’s chief interest-rate strategist, and Joseph Brusuelas, the top economist at tax consulting firm RSM, both predict that the 10-year Treasury yield will climb to about 4.5% by the end of next year. BMO Capital Markets’ Scott Anderson sees it ending 2024 only little changed from where it’s been hovering — around 4.2%.

The three were the only ones among the 40 economists and strategists surveyed by Bloomberg who correctly predicted that the benchmark Treasury rate would rise over 4% to end this year near its current level.

They now say traders are falling into the same trap they did heading into the last two years: underestimating the economy’s strength and the likely persistence of inflation pressures. Signs of a slowdown in both helped drive the US bond market last month to its biggest gain since the mid-1980s, with yields tumbling sharply on speculation the Fed will cut its benchmark rate by over a full percentage point in 2024, starting in the first half of the year.

“Markets are pricing too much policy easing too soon,” said Korapaty.

The calls aren’t particularly worrisome, given that they would mean the debt market would effectively steady after being hammered by losses in 2021, 2022 and most of this year. But they highlight the risk that markets are prematurely dismissing the chance the Fed will keep rates elevated until inflation is safely reined in. The average forecast of those surveyed by Bloomberg is that 10-year yields will slide to 3.9% by the end of 2024.

Markets Keep Raising Bond Yield Forecasts