Wall Street splits on bond yield forecast

The expectation that the Fed will cut interest rates has also brought about different estimates for the course of bond yields next year. The expectation that the Fed will cut interest rates by a median of 75 basis points next year has led major banks to make very different estimates for the course of bond yields next year. According to data compiled by Bloomberg from analyst reports, strategists' median expectation for the US 10-year bond yield is 3.98 percent by the end of next year. Although this is not far from the 3.93 percent close on Monday, it does indicate a significant difference from the 4.20 percent expectation before the Fed's change of rhetoric and the 2023 peak of over 5 percent. Moreover, while some banks on Wall Street expect yields to fall sharply, others maintain their expectations for an increase. According to TD Securities, it is possible for 10-year yields to fall to 3 percent within a one-year horizon. On the other side of the spectrum, Barclays expects the yield in question to rise to 4.35 percent. Bank of America maintains its 4.25 percent expectation, but the bank’s strategists acknowledge that the Fed’s new stance has increased downside risks to its forecasts. Goldman Sachs has forecast 4 percent, Morgan Stanley 3.95 percent and JPMorgan 3.65 percent for 10-year yields next year. According to Bryce Doty, a fund manager at Sit Investment Associates, which manages about $9 billion in bond funds, the divergence in estimates indicates that the Fed’s dovish turn is a significant turning point.