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What's going on?
Analysts at investment bank Morgan Stanley believe investors should be buying US government bonds (a.k.a. Treasuries) right now. But big dogs, including the CEO of JPMorgan Chase and Morgan Stanleys own CEO, disagree
What does this mean?
In a report published on Friday, Morgan Stanley argued that the price of 10-year Treasuries will rise because the government wont be selling any such bonds for a while (think: lower supply tends to push prices up). Morgan Stanley also believes demand from Japanese investors as well as investors clamoring for the relative safety that bonds offer following weaker-than-expected economic growth in Canada will help push prices higher.
Remember: as bond prices rise, the interest rates (a.k.a. yields) they offer to new investors go down since the payments as a percentage of the bonds rising values are smaller.
Why should I care?
For markets: Theres strong disagreement from other investors.
Big American investors are thinking more in line with the two CEOs that the 10-year Treasury yields are heading as high as 4% from their current level of 2.9% (which would mean that their prices will fall). And other investors appear to agree with the heavy hitters: the price of 10-year Treasuries fell on Monday (so their yields rose).
The bigger picture: There are a handful of reasons Morgan Stanley could be wrong.
Morgan Stanley says that if its wrong, itll likely be down to the trade disputes between the US and China resolving quickly. Investors have sold stocks around the world buying government bonds (which are generally considered safer) instead so dissipating trade tensions could encourage investors to do the opposite. Also, if US economic growth is stronger than expected this year, that could mean more interest rate increases than anticipated making bonds look less attractive, and encouraging investors to sell.
Originally posted as part of the Finimize daily email.
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