SINGAPORE: Goldman Sachs Group Inc president Gary Cohn said Treasury yields will probably rise, just as Morgan Stanley predicts the opposite.
“If I had to trade it right now, I’d sell,” Cohn said in an interview on Jan 22. The benchmark 10-year yield will probably be in a range of 2% to 2.30%, he said. It was 2.06% yesterday. “I’d look for the range to go back to 2.30,” he said.
“The bull market is here,” Morgan Stanley wrote in a report on Sunday by analysts led by Matthew Hornbach, the head of global interest rate strategy. Ten-year yields may fall to a range of 1.55% to 1.75%, according to the report.
The diverging views highlight the difference of opinions over the influence of falling oil prices on the US economy and whether a surprise rally in Treasuries this year can go any further.
Goldman Sachs and Morgan Stanley, which are both based in New York and among the 22 companies that trade directly with the Federal Reserve, are chiming in as the central bank prepares to hold its first policy meeting of the year tomorrow and on Wednesday.
Cohn said traders are allowing oil prices to hold too much sway over other markets. Crude fell to a 12-year low last week.
Treasuries have rallied 1.5% in January, heading for their biggest monthly gain in a year, based on the Bloomberg World Bond Indexes, as tumbling oil and equity prices drove investors to the relative safety of government debt.
“What’s going on in the oil market should not be dictating what’s going on in the equity market and what’s going on in the fixed-income market,” Cohn said.
“I think people are confusing the supply-demand picture in oil, and they’re saying:
‘Aha, there’s a slowdown in the global economy because no one’s consuming oil.’ And I think that’s wrong.”
Morgan Stanley anticipates economic data will “underperform expectations.”
The Fed will probably hold interest rates unchanged and say it’s monitoring volatility in financial markets, said Hiroki Shimazu, the senior market economist in Tokyo at SMBC Nikko Securities Inc.
US economic data this week will show consumer confidence held unchanged in January, growth in new home sales slowed in December, durable goods orders fell last month and economic expansion ebbed in the fourth quarter, based on Bloomberg surveys of analysts.
The latest employment report showed the US added 292,000 jobs in December, versus an average of 214,000 for the preceding 11 months.
“Volatility in the financial markets will have little influence on the real US economy,” Shimazu said. “The US labour market is in really good shape.”
Ten-year yields will rise to 3% by the end of March, Shimazu said. A Bloomberg survey of banks and securities shows the figure will be 2.35%, with the most recent forecasts given the heaviest weightings. – Bloomberg
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