Morgan Stanley said the 10-year increase in Treasury yields is reasonable and reflects growing confidence in the U.S. economic outlook, according to Jim Caron, the investment bank’s global fixed income portfolio manager.
The ten-year Treasury yield jumped above 1.7% on Thursday, its highest level in more than a year. It came even though the Federal Reserve reassured investors he had no plans to raise interest rates soon nor facilitate the bond purchase program.
The yield on the 30-year Treasury bond rose 3 basis points to 2.472%. Yields are reversed to prices.
According to Caron, the recent rise in bond yields does not indicate a tightening of financial conditions.
“The way I see it is that since we’re here around 1.75%, 1.7% on the ten-year note, I think this is a reasonable area where we can expect some consolidation. , ”he said Friday, referring to how performance will likely stay within a range, neither continue much higher nor invest much.
“Because that’s the level the market expected us to reach, with a weaker-than-expected announcement from the Fed. And that’s what we got,” he told CNBC during “Squawk Box Asia.”
“Fiercely bullish” on US growth
After concluding the two-day Fed policy meeting on Wednesday, the U.S. central bank said it saw stronger economic growth than previously estimated, and forecast gross domestic product to rise to 6.5% in 2021. It is higher than the expected GDP increase of 4.2% in December.
The Fed also expects core inflation to reach 2.2% this year, but in the long run it expects it to remain around 2%.
Confidence comes as states reopen, people get vaccinated and infection rates go down.
Jim Caron
the global fixed income portfolio manager, Morgan Stanley
Michael Spencer, chief economist and chief research officer at Asia-Pacific at Deutsche Bank, echoed a similar view and said it was “completely natural for long-term bond yields to rise”.
“Everyone is tremendously bullish on U.S. growth. We expect the economy to grow 7.5% over the course of this year,” he told CNBC’s “Squawk Box Asia.”
“I don’t think what we’ve seen is messy. I think we should expect by the end of the year that the yields on ten-year bonds will be two or a quarter (percent) or more.”
Rising Treasury yields are a reflection of the strong boost in the U.S. economy following the recent $ 1.9 trillion coronavirus relief package signed by the Biden administration last month, Caron said . He added that confidence is likely to increase as the country bounces off the coronavirus pandemic.
“Confidence is coming as states reopen, people are getting vaccinated and infection rates are going down. Certainly, all that extra money coming out of the relief plan and payroll protection programs will be useful. confidence and consumption: consumption is 70% of GDP, ”Caron said.
Caron also downplayed the concerns that the tax relief package could pose to higher inflation.
“I don’t know how inflationary it is. There’s been a lot of money. However, what we have to see is speed, which means that economic activity is starting to rise to the point that it really creates. “And we are not seeing that yet,” he said.