Recession Worries Have Investors Buying Treasuries, Doubting Stocks

(Bloomberg) — A clear majority of investors expect a US recession before 2024 is out, leading them to view the current bull market in stocks as ephemeral and to favor long-term US Treasuries.

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That’s the takeaway from the latest Markets Live Pulse survey, which showed that roughly two-thirds of the 410 respondents anticipate a downturn in the world’s biggest economy by the end of next year. A minority of 20% of pollees even see a slump in 2023, at a time when the Federal Reserve’s own staff have ditched their recession forecast altogether.

Survey respondents appear to be looking past the economy’s current resilience and anticipating further damaging ripple effects from the Fed’s 5.25 percentage points of cumulative tightening over the past 16 months. The Fed lifted its benchmark rate to the highest in more than two decades last month and Chair Jerome Powell signaled additional hikes are possible.

The poll results are consistent with pricing in fed funds futures, which show traders expect the central bank to cut interest rates multiple times in 2024, by more than one percentage point in aggregate, ostensibly in response to eventual economic weakness.

The upshot is that investors see value in long-term Treasuries, with yields at one point last week threatening to test the multiyear highs touched in October. As they chart their allocation choices for the year ahead, survey respondents seem to be unbowed by last week’s bond-market slide, which came against the backdrop of the Treasury’s announcement that it will boost issuance, and as Fitch Ratings downgraded US sovereign debt. Treasuries recouped some ground Friday on data showing job growth in July was less than forecast.

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Investors are likely betting that the Fed will pivot to rate cuts in 2024, making long-maturity debt attractive despite the more than 1 1/4 percentage points of yield pick-up currently available on short-dated bills. Almost 60% of Pulse participants say now is a good time to buy…


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