Traders have withdrawn $5.3 billion from BlackRock’s iShares 20+ Year Treasury Bond ETF this month, setting a course for a record high outflow. Simultaneously, optimism in equities has surged as investors anticipate another year of robust returns for the S&P 500. The diminishing sentiment towards bonds could potentially serve as a warning sign for 2025, according to Rosenberg Research. Investor confidence in the bond market as the new year approaches appears to be wavering.
The recent outflows, totaling $5.3 billion from BlackRock’s iShares 20+ Year Treasury Bond ETF, signify the highest monthly withdrawal levels in the fund’s 22-year history. These outflows may indicate looming challenges ahead as investor faith in longer-term bonds weakens, as highlighted by Rosenberg Research. Bond yields have risen this month, reflecting the market’s adjustment based on the Federal Reserve’s revised expectations for fewer rate cuts.
David Rosenberg, the founder of the firm, expressed in a note on Monday, “Bond market sentiment could scarcely be worse than is currently the case.” As negative sentiments persist around bonds, optimism in the stock market continues to soar. Financial experts on Wall Street generally foresee another year of strong performance in 2025, with the S&P 500 anticipated to yield an average return of approximately 10% next year following two consecutive years of over 20% returns. Bold predictions from firms such as Oppenheimer and Wells Fargo even suggest gains exceeding 17% in the upcoming year.
With optimism prevailing, the bond market’s cautionary signals could be indicating prudence as 2025 approaches, as noted by Rosenberg. He further explained that the diminishing bond sentiment is a consequence of both the Fed’s hawkish comments and expectations surrounding the trade and fiscal policies under president-elect Donald Trump.
While the Federal Reserve implemented a 25 basis point cut earlier this month, marking its third consecutive reduction of the year, the outlook for additional cuts in 2025 has been tempered. Fed Chair Jerome Powell emphasized the need for caution in future decisions to avoid hindering progress in addressing persistent inflation concerns. Consequently, bond investors now anticipate only one or two further interest rate cuts from the Fed in 2025, a shift from previous expectations of at least four cuts.
Rosenberg remarked, “Powell and crew have scared off the bulls, at least for now.” Concerns over potential inflation risks stemming from Trump’s proposed tariffs on major trading partners like China and Canada, as well as stricter immigration policies, have also dissuaded investors from extending bond durations. Rosenberg stated, “It’s not just the Fed, but Donald Trump’s trade and fiscal posture have also scared investors away from extending duration.”
In conclusion, the evolving dynamics within the bond and equity markets suggest a cautious approach as 2025 looms closer. While stock market optimism remains high, the shifting sentiments in the bond market, influenced by various economic factors and policy decisions, indicate a complex landscape ahead for.
