Abby Joseph Cohen Is Worried About the Bond Market

Goldman strategist notes rise of short-term rates and projects a 3.6% 10-year Treasury.

Abby Joseph Cohen predicted the 1990s tech stock boom. Now she is forecasting a bond bust that will hurt investors.

The 35-year bond bull market may well be coming to a close, a jeremiad she shares with numerous other market analysts. Interest rates are on the rise, in part due to the Federal Reserve’s tightening on the short-term side. The threat of an inverted yield curve, which protects a recession, is growing.

“I’m more concerned about fixed income than equities,” the senior investment strategist for Goldman Sachs told Bloomberg Television. “There’s already been a notable rise in interest rates at the intermediate and long end. I think it will be increasingly difficult for fixed-income investors to do well.”

She said she expects the benchmark 10-year Treasury, now yielding around 2.95%, to rise to 3.9% by the end of 2019. The last time the 10-year was that high was 2011. That year, Standard & Poor’s downgraded the US because of a budget standoff between Congress, just taken over by the GOP, and Democratic President Barack Obama.

Cohen cited the prospect of a trade war as a danger to the stock market, whose valuation she called “OK but not great.” The S&P 500’s price/earnings ratio is slightly over 17, about two percentage points higher than the historical average.

“Over the last year or two or three, the significant demand in U.S. equities has come from the countries where the president is now talking about slapping significant tariffs,” she said. “That can’t make those investors particularly friendly toward the United States.”


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