Why aren’t rates likely to head higher soon? Let us count the ways.
This article is part of a regular series of thought leadership pieces from some of the more influential ETF strategists in the money management industry. Today’s article features Tyler Mordy, president and co-chief investment strategist of Toronto-based Hahn Investment Stewards.
At the beginning of the year, the consensus was overwhelmingly wrong that interest rates would rise in 2014. In hindsight, that was a clear contrarian opportunity. Yields have plummeted, boosting the value of a variety of income-oriented asset classes.
Where to next? Will yields return to the longer-running average—the median 10-year yield over the past 143 years is 3.92 percent—or stay low, as in Bill Gross’ “new neutral” scenario?
To be sure, the interest-rate outlook is today’s most important question for asset allocators. The direction and level of yields drives the price of all other asset classes.
The consensus still predicts higher yields ahead. Bloomberg’s monthly survey shows that economists have not retreated from their late 2013 view—99 percent still expect higher rates for the 10-year Treasury note.
So, what’s our view at Hahn?