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This is an update from last month:
The table below shows the results of Bloomberg’s survey of economists. It details economists’ expectations for 10-year Treasury yields over the next six months. For those familiar with this survey, we use the quarter-end results closest to six months into the future.
See the bottom of the table. Since December 2002 Bloomberg has conducted 99 monthly surveys. Of these, an incredible 95 surveys (96%) have forecasted higher rates. To repeat, only four times since 2002 (4%) have economists been forecasting lower rates. Those instances are highlighted in red. Even these bullish forecasts can be explained in a bearish light.
In all these cases (June 2007, June 2008, June 2009 and December 2010), interest rates spiked dramatically higher during the survey period, which can be a week long to 10 days long and cover the same period of time as the payroll report, causing some economists’ forecasts that were bearish when given to look bullish when they were finally published (We use the yield on the survey’s release date to grade these results). We do not have the data to adjust for this reporting quirk, but it could very well mean that 100% of these forecasts actually expected higher rates.
Further, as also shown at the bottom of the table, an average of 78% of the respondents in these surveys expect higher rates. In 36 of the 99 monthly surveys, more than 90% of the respondents were looking for higher interest rates, including the latest survey (May 2011) which shows 99% (69 of 70) respondents see higher rates in the next six months. These instances are in bold below.
Economists are always bearish on interest rates. Expansion, great recession, bubble, surplus, deficit, inflation, deflation, equity bull market, equity bear market, easing, tightening, Republican, Democrat, winter, summer, Yankees, Red Sox – it doesn’t matter. The results are always the same. So, can we have a bond debacle when everyone is forecasting it?
<Click on table for larger image>