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Bloomberg
Morgan Stanley countered Bill Gross’s call that Treasuries are in a bear market. “Don’t worry, Treasuries continue to offer value,†Morgan Stanley strategists Matthew Hornbach and Guneet Dhingra in New York wrote in a note. “This isn’t the bear market you’re looking for,†according to the firm, one of
the 23 primary dealers that
underwrite US debt securities.
A jump in yields prompted Gross, at Janus Henderson Group, to declare a bear market in a tweet, raising concern among followers of the veteran bond investor that Treasuries are headed for a tumble in 2018. The billionaire based in Newport Beach, California, qualified that “the bear market that I’m talking about is a mild one,†in a Bloomberg interview.
The latest move up in 10-year Treasury yields have been driven by concerns about China’s purchases of US securities and the potential for the Federal Reserve to adopt a price-level — rather than inflation rate — targeting approach in setting policy, according to Morgan Stanley. Any such switch by the Fed could see it fail to react aggressively, at least for a time, to a jump in the inflation rate past its 2 percent target. Neither of those factors are
likely to sustain the recent move, Hornbach and Dhingra wrote.
Chinese officials have recommended slowing or halting purchases of Treasuries, Bloomberg News reported. But investors shouldn’t expect the country to stop buying or start selling, the Morgan Stanley report said. Other sovereign markets with comparable liquidity don’t offer comparable yields, it pointed out.