2014 was supposed to be the year that yields went higher. Instead, they've dropped to as low as 2.4 percent on Thursday, from 3 percent at the beginning of the year. But Wharton professor of finance Jeremy Siegel says that economic strength will eventually get yields moving modestly higher again.
"When we really get 3 percent, 3-plus percent, 3.5 percent growth in the second quarter, we will see bonds really turn around. And I could see them rise 100 basis points [or 1 percent], maybe not right now, but through the year and into early next year," Siegel said on Thursday's "Futures Now." "But they will only do so if we get a strong economy."
First-quarter GDP growth was revised down to a 1 percent contraction on Tuesday, which is a far cry from 3 percent. But Siegel says the number actually portends stronger growth in the current quarter.
"The first quarter was a disaster," but "actually the news in this morning's GDP [is] actually slightly favorable for second quarter—a number of analysts have raised it up to 3, 3.5" in anticipation of a Q2 bounce back.
"And you ask yourself, well, why are yields going down? There are just these powerful forces that are continuing to buy bonds—hedge against uncertainty, pension funds de-risking their portfolio, baby boomers are not back really into stocks anywhere the way they used to be, and as a result, the bond market has a really big demand on it that's keeping these yields lower," Siegel said.