Morgan Stanley (MS) acknowledged on Friday that its forecast that Treasury yields would rise this year was misguided. The NY-based firm that trade government securities with the Federal Reserve now advises tactical spread trade.
Bloomberg: “We got our rates call wrong and missed a great opportunity to be long bonds this year,” James Caron, global head of U.S. interest-rate strategy at Morgan Stanley in New York, wrote in a note to clients yesterday. “The market is currently rife with tactical relative value opportunities and that’s what we will focus on going forward.”
Caron is advising clients to buy shorter-term Treasuries maturing in 5 years or less and 1- and 2-year forward contracts.
“If the Fed is going to be on hold for an extended period of time, then that’s the sector that is going to perform the best and it also has the best risk-weighted return,” Caron said today in an interview with Thomas R. Keene on Bloomberg Radio.
Full Caron Clip: