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Why US Bond Yields Should Be Far Lower
Bond yields should be higher. It's easy to make the case. I do it all the time. Typically by reference to purportedly "epochal" macro shifts tied to the pandemic and the war(s).
Bond yields should be lower. It's (fairly) easy to make the case. I do that all the time too. Typically by reference to a purportedly "imminent" recession that's destined to come knocking once "long and variable lags" finally catch up to us.
So, yeah: I argue both sides of the coin. Habitually. That's part of it, folks
I manage my 90 year old father’s portfolio on his behalf. 100% in USTs.
He has some USTs maturing on March 31 which I will reinvest; just as this post suggests.
I feel better already.
I’m not one to quibble with Morgan Stanley and am not familiar with the length of the time series’ behind their model, but the immigration-led disinflationary growth thesis feels reachy to me. I mean it’s interesting and I hope it’s true, but is it really too simplistic to think that after an unusual and unusually persistent stretch of negative reals, nominals are not going to march in lockstep back down with inflation, after chasing it for 3+ years? Reals are up 300 bp in a little over 2 years. but are only back to what not too long ago were considered “normal” levels. Maybe this is just the new normal until the market, like the Fed, “has gained greater confidence that inflation is moving sustainably down toward 2 percent.” But while the Fed may be broke, it’s bondholders who got burned (or burned up if you were an unlucky bank). So maybe it’s just a little risk premium, or a catch up bonus if you like, gumming up the works a bit.
It’s hard to side with Ian Hunter and Mick Ronson over Morgan Stanley here, but they were warning about exactly this kind of thing way back in 1975 (with a hat tip, likely, to Aesop). And you didn’t need charts — just a radio.