2023-09-11 22:26:54
US Treasury bonds are a safe haven for investors in times of market turmoil (Getty)
Morgan Stanley contradicted the expectations of investors, who were waiting for the value of US Treasury bonds to decline, advising them to buy those bonds, especially in light of the intense state of optimism regarding the possibility of achieving a safe economic decline.
Matthew Hornbach, one of the bank’s strategists, said, according to a research note published by the bank on Monday, that supporting Treasury bond prices may result from a decline in inflation, even as the economy continues to achieve healthy growth rates. Bond prices rise as their yields decline.
He said: “We continue to recommend that investors increase their investments in government bonds, while lengthening their maturities,” adding, “Strong growth rates indicate that the current rises in bond yields may not continue for long periods, without being exposed to corrective waves.”
According to the note, the investment bank advises its clients to buy five-year Treasury bonds and 30-year inflation-linked bonds.
Morgan Stanley’s optimistic view contrasts with the views of economists from a number of other financial institutions on Wall Street.
JP Morgan Chase & Co. raised its forecast for ten-year US government bond yields last week, at the end of the year, to 4.20% from 3.85%, asking its clients to avoid investing in five-year bonds.
Bank of America also advised its clients last week to take a neutral stance towards US debt, considering that the strength of the economy may lead to ten-year yields rising to a level of up to 4.75% before they decline, stabilizing near 4%.
The clash of opinions reflects a real conflict on Wall Street, where asset managers were bullish, as seen in 10-year government bond futures, according to the latest weekly figures from the Commodity Futures Trading Commission, while many investment funds extended sell positions in long-term bond contracts. the long.
US bond yields rose by approximately one percent, from their lowest level this year, which was recorded in April, coinciding with traders adjusting their expectations for a reduction in interest rates by the Federal Reserve this year, following the release of economic data that was better than expected.
Ten-year bond yields rose another three points on Monday to 4.29%, following Treasury Secretary Janet Yellen said on Sunday that she was “very optimistic” regarding avoiding a recession and containing inflation.
Morgan Stanley was happy that its advice to investors differed from the advice of other banks, as it considered that “the summit does not accommodate more than one point of view.”
Investing in US Treasury bonds
Investing in US government bonds involves purchasing debt securities issued by the US Treasury. These investments are considered among the safest options at the local and global levels, thanks to the full support of the US government, which means a huge reduction in the risk of default.
There are several types of US government bonds, according to their maturities, which usually range from several days to 30 years.
High liquidity is one of the most important advantages of investing in US government bonds, which means that they can be sold in the market, without making major concessions in terms of price, which guarantees investors prompt access to their funds when needed. These bonds can be purchased on the secondary market.
US government bonds also provide a stable source of income, through periodic interest payments to investors. While it is customary to sell treasury bills, which are the short-term type of bonds, at a discount, provided that they mature at their nominal value, medium- and long-term bonds pay semi-annual interest coupons.
Many investors, including retirees, prefer government bonds because they provide predictable and regular income, which can be used for multiple purposes, such as covering living expenses or financing future financial needs.
For investors anticipating higher inflation, Treasury Inflation Protected Securities (TIPS) are available, which are designed to adjust their value according to changes in the Consumer Price Index (CPI), which preserves the purchasing power of the money used to purchase them.
It should be noted that US government bonds usually offer lower returns compared to riskier investment options, such as stocks or corporate bonds, which means that investors looking for higher returns may need to explore other investment options.
With respect to taxes, interest income from US government bonds is subject to federal income tax, but exempt from state taxes. There are special tax provisions related to inflation adjustments for Treasury Inflation Protected Securities (TIPS).
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