Bond yields could disrupt equities rally: Morgan Stanley
Strategists warn that the rally faces tests this week.
Bond yields are approaching a key level that could potentially disrupt the equities rally, according to Morgan Stanley strategists.
“We view 4.35% on the 10-year US Treasury yield as an important technical level to watch for signs that rate sensitivity may increase for equities,” a team led by Michael Wilson wrote in a note. The yield is currently trading around 4.30%.
US equities have been rallying on optimism about better-than-expected economic growth and developments about artificial intelligence. Investors are also looking to this week’s Federal Reserve meeting for confirmation that interest rates are set to be lowered.
“Stocks are now trying to move past their dependence on central bank policy,” Wilson said. “This week’s Fed and BOJ meetings will be important tests to see if that trend holds.”
Against the backdrop of strong job growth and a jump in prices in January and February, Fed officials have repeatedly emphasized they’re in no rush to ease. Most economists surveyed by Bloomberg News expect the policymakers to pencil in three cuts for 2024, with the first move coming in June, though more than a third expect a hawkish surprise of fewer reductions.
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