Mor­gan Stan­ley says bonds set to surge in 2016 year of the bull

The Pak Banker - - FRONT PAGE -

WASH­ING­TON: Mor­gan Stan­ley, one of the Wall Street banks that deals di­rectly with the Fed­eral Re­serve, cut its bond yield fore­casts for 2016 and said the U.S. cen­tral bank will wait un­til De­cem­ber be­fore rais­ing in­ter­est rates. "The global back­drop for rates mar­kets looks so sup­port­ive that 2016 may be­come known as the ' Year of the Bull,'" ac­cord­ing to a re­port the com­pany is­sued Sun­day by an­a­lysts in­clud­ing Matthew Horn­bach, head of global in­ter­est-rate strat­egy in New York.

Most ma­jor economies will do worse in 2016 than 2015, the re­port said. Cen­tral banks in Europe and Ja­pan will keep eas­ing mon­e­tary pol­icy, while the Fed and the Bank of Eng­land will de­lay rais­ing rates, ac­cord­ing to the firm. Trea­sury 10-year yields will fall to 1.45 per­cent by the end of Septem­ber, the an­a­lysts wrote, ap­proach­ing the record low of 1.38 per­cent set in 2012. The Fed and the Bank of Ja­pan will re­frain from tak­ing any ac­tion in meet­ings this week, based on Bloomberg sur­veys of econ­o­mists.

A 2016 rally in Trea­suries, the world's big­gest bond mar­ket, ran con­trary to the sell­off pro­jected by Bloomberg's sur­veys of econ­o­mists as plung­ing stock and oil prices sent in­vestors to the safety of govern­ment debt. Bor­row­ing costs fell in al­most ev­ery in­dus­tri­al­ized na­tion, with av­er­age yields on $23 tril­lion of bonds fall­ing to 0.69 per­cent in Fe­bru­ary, the low­est on record based on Bloomberg in­dexes that go back to 2010.

Bench­mark Trea­suries rose Mon­day, with the 10-year note yield fall­ing two ba­sis points, or 0.02 per­cent­age point, to 1.97 per­cent as of 6:56 a.m. New York time, ac­cord­ing to Bloomberg Bond Trader data. The 1.625 per­cent se­cu­rity due in Fe­bru­ary 2026 gained 5/32, or $1.56 per $1,000 face amount, to 96 29/32.

The 2016 bond rally is be­ing driven by the un­prece­dented mon­e­tary eas­ing that cen­tral bankers in Europe and Ja­pan have un­der­taken to re­vive their economies. The ECB sur­prised in­vestors last week by low­er­ing its de­posit rate to mi­nus 0.4 per­cent, in­creas­ing its bond buy­ing and in­cor­po­rat­ing com­pany debt as part of its pur­chases. In Fe­bru­ary, the BOJ added neg­a­tive rates to its quan­ti­ta­tive-eas­ing pro­gram.

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