Two of Wall Street's biggest banks are forecasting divergent paths for Treasuries in the last three months of 2016 as strategists weigh the effects of improving U.S. economic data and stimulative central-bank policy abroad.
Economists at Goldman Sachs Group Inc. see benchmark 10-year yields climbing to 2 percent by year-end, fueled by an improving outlook for inflation and economic growth. By contrast, Morgan Stanley is forecasting yields will fall to 1.25 percent amid accommodative global monetary policy and continued demand for haven assets.
"Central banks are going to remain broadly supportive of bond markets," Matthew Hornbach, head of global interest rate strategy at Morgan Stanley, said in an interview with Bloomberg Television Friday. "That's the beauty of government-bond markets. Whenever there's risk-off, that's where investors go."
Treasuries have gained more than 5 percent in 2016, defying consensus forecasts that yields would rise, as investors have sought havens over concerns ranging from stagnant global growth to fallout from the U.K.'s Brexit vote. U.S. 10-year yields are poised to end September little changed after being whipsawed by central banks during the month, rising after the European Central Bank didn't expand its stimulus program only to fall after the Federal Reserve and Bank of Japan maintained accomodative policies.
Yields Rise
Benchmark 10-year yields rose four basis points, or 0.04 percentage point, to 1.6 percent as of 12:26 p.m in New York, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 climbed to 99 1/8.
Treasuries fell Friday and equities climbed as Deutsche Bank shares rebounded from a record low after a media report that the lender is nearing a $5.4 billion settlement with the U.S. Department of Justice in connection with an investigation into residential mortgage-backed securities, less than half the amount initially requested.
