Morgan Stanley interest rate strategists are recommending a position that bets on a widening yield spread between US 7-year and 30-year bonds, anticipating that the yield curve will steepen as short-term yields fall more than long-term yields amid fading expectations for Federal Reserve rate hikes. They expect the spread to widen from 63 basis points at the time of the recommendation to 100 basis points. The strategists noted that the interest rate market is pricing in too much tightening following soft US employment data for June. Morgan Stanley expects no rate hikes this year and a rate cut in March next year, and with the San Francisco Fed's proxy federal funds rate 100 basis points above the actual federal funds rate, they view this effective tightening as excessive and see the spread as a risk premium.
Morgan StanleyMorgan Stanley's own strategists recommend a trade that could generate revenue for the firm, and the article highlights their expertise.