According to Morgan Stanley, the rise in ten-year treasury yields is reasonable and reflects the growing confidence in the US economic outlook, according to Jim Caron, global fixed-income portfolio manager at the investment bank.
Ten-year treasury yields rose above 1.7% on Thursday, the highest level in more than a year. It came even though Federal Reserve investors reassured it he did not intend to raise interest rates any time soon, nor did he intend to facilitate his bond-buying program.
The return on the 30-year Treasury bond climbed by 3 basis points to 2,472%. Yields move inversely to prices.
According to Caron, the recent increase in bond yields does not indicate a tightening of financial conditions.
“The way I see it is that if we put about 1.75%, 1.7% in the 10-year note here, I think it’s a reasonable area where we can expect some consolidation,” he said. he said Friday, referring to how the returns are likely to stay within a range, and will not continue much higher or switch back much.
“Because that’s the level the market expected us to reach, at a more dull than expected Fed announcement. And that’s what we got,” he told CNBC during ‘Squawk Box Asia’.
‘Wild bullish’ on US growth
After concluding the Fed’s two-day policy meeting on Wednesday, the US Federal Reserve said it sees stronger economic growth than previously forecast, and predicts that gross domestic product will rise to 6.5% in 2021. in December.
The Fed also expects core inflation to reach 2.2% this year, but has a long-term expectation that it will hold around 2%.
Confidence comes as states reopen, people are vaccinated and infection rates drop.
Jim Caron
Global Fixed Income Portfolio Manager, Morgan Stanley
Michael Spencer, chief economist and head of research in Asia-Pacific at Deutsche Bank, expressed a similar view, saying that it is “completely natural for long-term yields to rise on bonds.”
“Everyone is very positive about US growth. We expect the economy to grow by 7.5% during the course of this year,” he told CNBC’s “Squawk Box Asia”.
“I do not think what we have seen is disorderly. I think we should expect by the end of the year that the rate of return of ten years will be two and a quarter (percent) or higher.”
The rise in treasury yields is a reflection of the strong growth momentum for the US economy following the recent $ 1.9 billion coronavirus relief package signed by the Biden government last month, Caron said. He added that it is likely to increase confidence as the country recovers from the coronavirus pandemic.
“Trust comes as states reopen, people are vaccinated and infection rates drop. All this extra money paid out of the aid plan and wage protection programs will definitely be useful. It will really help with trust and consumption – consumption is 70% of the GDP, ”Caron said.
Caron also expressed concern about the fact that the fiscal relief package could lead to higher inflation.
“I do not know how inflationary it actually is. A lot of money has been printed. What we need to see, however, is the speed, which means that economic activity is really starting to increase to some extent that it is actually creating inflation. not yet, “he remarks.