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April 23, 2018 at 04:27 PM
It turns out there were plenty of buyers of 10-year Treasuries at a 3% yield. Well, 2.996%, to be exact.
The inability to break through that key psychological level makes all the difference to Morgan Stanley on calling the next move in the world’s biggest bond market.
The latest failure to breach 3%, should it last, portends a rally back to 2.7%, according to strategists led by Matthew Hornbach. Of course, it’s not too late for the selloff to intensify, and the yield could reach 3.25% once past the 3% hurdle, they said. Ten-year Treasuries traded at a 2.97% yield at about 3 p.m. in New York.
(Related: 3 More Warning Signs That a Seismic Shift in Bonds Is Coming)
“A lot of investors that we speak with, when I ask them ‘Where would you want to enter the market and start to buy Treasuries?’ you’re typically hearing numbers like 3% on the 10-year, 3.25% on the 30-year,” Hornbach, global head of interest-rate strategy at Morgan Stanley, said in an interview at Bloomberg’s New York headquarters. Because those are such “common numbers,” they can drive momentum up or down, he said.
Fixed-income fund managers have been focused on the 3% level to gauge whether the three-decade bull market in bonds is at an end, and to assess how much a glut of supply from the U.S. Treasury will weigh on investors.
(Related: How to Invest in a Bond Market About to Be Flooded With New Debt)
Jeffrey Gundlach, chief investment officer of DoubleLine Capital, said Monday on CNBC that the 10-year note closing above 3% could accelerate a move higher in yields. He also cited 3.22% as critical for 30-year bonds, which aligns with the maturity’s highest closing yield this year.
A lot of investors are positioned against Treasuries, in part because the U.S. is borrowing so much at its auctions each month at the same time the Federal Reserve is tapering its holdings, he said.
