It’s that time of year again. You know, the wonderful season when Wall Street’s strategists come out of their shells en masse to make predictions about the year ahead.
What are they prophesying? Wall Street foresees grave danger and disaster in the bond market.
As Bloomberg reports: “With Federal Reserve Chair Janet Yellen poised to raise interest rates in 2015 for the first time in almost a decade, prognosticators are convinced Treasury yields have nowhere to go except up. Their calls for higher yields next year are the most aggressive since 2009, when U.S. debt securities suffered record losses.”
This time around, the median forecast among Wall Street’s strategists, according to Bloomberg, calls for 10-year U.S. Treasury yields to reach 3.01% by the end of 2015. The roughly 0.75% rise would be almost double the amount forecasters anticipated for 2014!
You can now start playing “I’ve heard that song before” by Harry James. Why? Because you have! At the start of 2014, all 72 Wall Street strategists polled by Bloomberg – the same list of characters being polled about 2015 – confidently predicted that bond prices would fall and interest rates would rise.
How did that prediction turn out? The yield on 10-year Treasuries has done the exact opposite of what Wall Street predicted by crashing 27% to around 2.19%. And since bond prices go up when yields fall, bond ETFs like the iShares 20-Plus Year Treasury Bond ETF (TLT) have soared almost 25%, easily outperforming the Dow Industrials, S&P 500, and gold.
By the way, the prestigious list of top performing ETFs for 2014 is led by funds that double and triple their daily performance to long-term U.S. Treasuries.
Over the past year, ETFs like the ProShares 20-Plus Year U.S. Treasury ETF (UBT) and the Direxion Daily 20-Plus Year U.S. Treasury Bull 3x (TMF) have skyrocketed by 57% and 94% respectively. In other words, look at the tremendous gains you would’ve missed by listening to Wall Street’s predictions!
For further context, this incorrect macro view (fancy language for bad advice) of higher rates and lower bond prices has been perpetrated not just at the beginning of 2014, but throughout the year.
Here’s what they were saying:
“Doug Casey: Bond Bubble Blowing Up” – USAWatchDog.com, Jan. 29, 2014