Careful, Treasury Bulls: Morgan Stanley Is On Your Side

Careful, Treasury Bulls: Morgan Stanley Is On Your Side

  • Posted Friday, October 14, 2011 -
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Bloomberg

Treasurys are selling off again today, as you'd expect with stocks higher, economic data mostly better than expected and inflation data coming in a little hotter.

The 10-year note yield is up to 2.25%, the highest since late August.

Never fear, though, says Morgan Stanley global rates strategist Jim Caron, who thinks the 10-year yield won't get above the dangerously specific 2.56%, Min Zeng reports:

The 10-year yield is to cap at 2.56%, says Morgan Stanley,one of the bears and a primary dealer in the Treasury market. That could bedisappointing to some bears. Jim Caron, global head of interest rate strategy atMorgan Stanley, says that is the upper limit for the benchmark yield "unless themarket starts to price material upgrades to growth and inflation expectations."Caron views rising yields as a buying opportunity.

Readers with long memories might recall that the same Morgan Stanley earlylast year thought the 10-year note yield would surge to 5.5% by year-end. To their credit, they issued a rare mea culpa about how deeply wrong they got that call (it ended the year below 3.5% and has since tumbled below 2%).

Morgan Stanley has since got religion on interest rates, correctly predicting in early August that the 10-year note yield would fall below 2%.

Their current call makes a lot more sense than the 5.5% call did. Still, it does seem that the market is starting to price in some pretty favorable outcomes right now, rightly or not - some kind of workable solution in Europe, recession avoidance in the US - which could easily take yields through that 2.56% mark, even if only temporarily.

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