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22V 10yr Survey: Higher Yields Short-term, Split on Direction Longer-term

Published on February 29, 2024

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Dennis DeBusschere

Brian Herlihy

Kevin Brocks

Sophia Wang

Quick summary, investors think:

10yr yields are heading higher short-term, but not necessarily longer-term.
- 67% think higher yields from here by the end of March; 50% think higher from here by the end of June.
- Median estimate for the end of March is 4.35%, and 4.17% for the end of June.
Why the 10yr yield increases matters for small cap relative performance.
A soft landing and rate cuts actually happening were cited as the trigger for small cap outperformance.

10yr Targets: 67% of the investors we surveyed think 10yr yields will end March higher. That percent drops to 50% for the end of June. The median expectation for the 10yr yield at the end of March is 4.35%, and the median for the end of June is 4.17%.

72% of investors think why the 10yr yield increases matters for small cap relative performance. Our view is if economic growth is pushing up 10yr yields, but not inflation, small caps will perform well, despite their interest rate sensitivity. A lot more on that HERE.

Small Cap Outperformance: A soft landing and rate cuts being realized were the most popular cited tailwinds to small caps.

Within small caps, investors prefer Tech, Health Care, and Industrials. Small cap Financials and Staples were consensus shorts.

Investors are split on small cap Value. They’re more positive on Growth. Our survey respondents don’t love risk-on factors within small caps, but do not like risk-off factors within small caps.

There are differences in sector and factor preferences based on how investors consider 10yr yields and small caps. Investors who do not think it matters why 10yr yields increase have a stark preference for small cap Health Care. Those who do think why matters prefer Tech and Industrials.

Momentum is much more popular for investors who do not think it matters why 10yr yields increase, while Growth is more popular for the cohort that does think why matters. Both like Value.

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