Morgan Stanley: "Time to Buy U.S. Treasury Bonds"

As the timing of the U.S. interest rate cut has been pushed back, causing U.S. Treasury prices to take a direct hit, global investment bank (IB) Morgan Stanley predicted a decline in inflation and recommended investing in U.S. Treasuries.

According to Bloomberg on the 7th (local time), Morgan Stanley stated in a client memo on the 4th, "Even if the economy does not enter a recession, if inflation indicators fall below market expectations, bond yields could drop sharply," it said.

Morgan Stanley expects inflation to decline faster than the market anticipates when seasonal inflation effects are taken into account.

The U.S. Federal Reserve (Fed) had earlier this year signaled three rate cuts within the year, but with strong economic indicators, forecasts shifted to a single rate cut by year-end, causing U.S. Treasury yields to rise significantly. Since bond prices fall when yields rise, investors are presumed to have incurred losses.

Morgan Stanley explained, "The U.S. Bureau of Labor Statistics and the Bureau of Economic Analysis did not account for the seasonal inflation increase at the beginning of the year, leading investors in the bond market to price in higher inflation than expected, which has driven overselling so far this year."

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