28, 2016 — 9:33 PM EDT
Updated on April 29, 2016 — 5:44 AM EDT
Goldman Sachs Group Inc. called Treasuries overpriced and said the Federal Reserve is poised to raise interest rates, clashing with Morgan Stanley’s forecast for a rally.
Ten-year Treasuries “look expensive,” based on Goldman’s assessment of a fair value, Francesco Garzarelli, the London-based co-head of fixed-income strategy, wrote in a report Thursday. Yields should be higher than 2.10 percent, based on the models the firm uses to analyze bonds, versus 1.84 percent Friday.
Morgan Stanley says U.S. government securities are poised to gain and the odds of a rate increase in June are declining. Ten-year yields will drop to 1.45 percent by Sept. 30, based on the firm’s “base case” forecast, according to a report Thursday by analysts including Matthew Hornbach, the head of global interest-rate strategy in New York.
The firms, which are among the 23 primary dealers that trade with the Fed, are at odds as investors decipher the central bank’s views on the economy in its statement this week. Morgan Stanley called the comment “slightly dovish.” Goldman forecasts rate increases in June, September and December. The U.S. plans to report on consumer spending Friday, after data Thursday showed the economy growing at its slowest pace in two years.
Looking for Growth
Central bankers used their statement to indicate growing confidence in the world economy while suggesting they’re still looking for the signs of growth, inflation and global stability to justify a move.
Treasuries were little changed Friday as of 10:42 a.m. in London, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in February 2026 was 98 1/8.
The Bloomberg U.S. Treasury Bond Index has fallen 0.3 percent in April, heading for its first monthly decline this year. It has returned 2.9 percent in 2016, with the 10-year yield falling from 2.27 percent at the close of 2015.
Treasuries were closed in Japan Friday for a holiday. They’re scheduled to trade as usual in the U.K. and the U.S., according to the Securities Industry and Financial Markets Association. U.S. government securities trading will be shut in the U.K. May 2 and in Japan for three days starting May 3, based on the association’s website.
Goldman Sachs has been calling for yields to rise, though it reduced its year-end forecast in February to 2.75 percent from 3 percent.
Morgan Stanley cut its own outlook in March and said 2016 may be known as the “Year of the Bull” for bonds. The firm’s March report also included the 1.45 percent prediction for the end of September.
Early in 2015, with the 10-year benchmark at about 1.9 percent, Goldman Sachs and Morgan Stanley both predicted it would jump to 2.85 percent by the close of the year — more than half a percentage point higher than the final level.