Morgan Stanley (NYSE:MS) has taken a contrarian stance on U.S. Treasury bonds, advising its investors to consider purchasing them as it believes markets may be overly optimistic about the prospect of a soft economic landing. This viewpoint challenges bearish views prevalent among its Wall Street counterparts.
Strategists at the investment bank, including Matthew Hornbach in New York, suggested that Treasuries are likely to find support in the market even if economic growth remains relatively healthy and inflation continues to slow down. They advocated for an overweight stance on government bond duration, warning that the market's extrapolation of strong long-term growth via higher long-term real rates may not pan out as expected. This could leave the increase in long-end yields vulnerable to a potential correction.
The firm's bullish outlook contrasts sharply with several of its Wall Street peers. JPMorgan Chase & Co. (NYSE:JPM) recently raised its Treasury yield forecasts, increasing the year-end target for the 10-year to 4.20% from 3.85%, and ended a losing recommendation to be long five-year notes. Similarly, Bank of America (NYSE:BAC) recommended a neutral stance on U.S. debt last week, suggesting that economic resilience may cause 10-year yields to climb as high as 4.75% before settling around 4%.
This divergence of opinions is also reflected in market positioning data. Asset managers have shown bullish sentiment on 10-year Treasury futures according to the latest weekly figures from the Commodity Futures Trading Commission, while hedge funds have extended their bearish positioning in long-bond contracts.
Benchmark U.S. yields have climbed about a percentage point from this year's low set in April. On Monday, ten-year yields rose another three basis points to 4.29% following positive remarks from Treasury Secretary Janet Yellen about avoiding a recession and containing inflation.
Despite the contrasting views on Wall Street, Morgan Stanley remains steadfast in its bullish stance. The firm advises its clients to consider Treasury five-year notes and 30-year inflation-linked debt.
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