Bond Yields Mixed as JPMorgan and Morgan Stanley Recommend Buying 5-Year Notes

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What’s Happening

  • The yield on the 2-year Treasury BX:TMUBMUSD02Y increased by 1.7 basis points to reach 4.39%. Remember, yields move in the opposite direction to prices.
  • On the other hand, the yield on the 10-year Treasury BX:TMUBMUSD10Y decreased by 2 basis points to settle at 4.11%.
  • Similarly, the yield on the 30-year Treasury BX:TMUBMUSD30Y declined by 1.3 basis points, resting at 4.32%.

What’s Driving Markets

  • This week, there will be auctions for 2-, 5- BX:TMUBMUSD05Y, and 7-year BX:TMUBMUSD07Y notes. Additionally, data on fourth-quarter GDP and the PCE measure of inflation will be released.
  • Strategists at Morgan Stanley suggest investing in 5-year Treasurys. They believe that the market is overlooking signs of inflation progress. For instance, the new tenant repeat rent index (NTTR) has declined to a level lower than during the global financial crisis.
  • In their opinion, the NTRR can refute the arguments of those who believe that inflation will be “sticky,” that the “last mile” of inflation will be challenging, or that more progress on rent inflation is required, such as Chicago Fed President Goolsbee.
  • JPMorgan also advises investors to purchase the 5-year note and add duration with that security.
  • They point out that the curve is currently at its steepest levels since early summer of 2022 when the Fed was transitioning to a rapid pace of tightening. Additionally, they find the technical backdrop more favorable as their client survey indicates relatively low conviction due to the combination of strong data and dovish Fedspeak.
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