Bond Bulls Find a Messiah in Morgan Stanley

The most dangerous call on Wall Street in recent years has been to predict the end of the bull market in bonds, which has lasted more than three decades. Each time U.S. Treasuries look as if they’re about to roll over and die, they quickly rebound and make even the smartest minds look foolish. Just consider the last 15 months, a period when the benchmark 10-year note yield Treasury went from about 2.45 percent to as high as 3.26 percent in October before falling back to around 2.72 percent Tuesday. Now, one influential firm says yields will fall further. Much further.

The economists and strategists at Morgan Stanley came out with a bold call Tuesday by predicting yields, which are used to help set borrowing costs for everything from corporate debt to household mortgages, will drop as low as 2.35 percent by the end of the year, a level not seen since the end of 2017. Based on the latest monthly survey by Bloomberg News, that makes the firm more bullish than any of the other 23 primary dealers, which are allowed to trade with the Federal Reserve and help the U.S. government with its debt sales. Tame inflation and lower economic growth are the main reasons Morgan Stanley reduced its year-end yield forecast from 2.45 percent, which compares with the median estimate of 3 percent in February’s monthly survey. (The next one is due out in coming days.) The point is that Morgan Stanley is unlikely to be the only firm lowering its yield forecasts with economists working overtime to reduce their economic growth estimates. The Federal Reserve Bank of Atlanta’s GDPNow Index, which aims to track growth in real time, has fallen to a “stall speed” level of 0.3 percent, while a similar gauge from the Federal Reserve Bank of New York is under 1 percent.