Back to top

Image: Bigstock

A Fan of Morgan Stanley, JP Morgan? Buy Intermediate Treasury ETFs

Read MoreHide Full Article

Two renowned Wall Street firms, Morgan Stanley (MS - Free Report) and JPMorgan (JPM - Free Report) , are advising investors to consider purchasing five-year U.S. Treasury notes, per Bloomberg, as quoted on Yahoo Finance. This advice comes in the wake of a slump in these securities, the largest since May of the previous year. Notably, iShares 7-10 Year Treasury Bond ETF (IEF - Free Report) is off 1.1% this year and iShares 3-7 Year Treasury Bond ETF (IEI - Free Report) has fallen 0.4% so far this year (as of Jan 19, 2024).

Morgan Stanley's Outlook: Potential for Rebound

Morgan Stanley analysts, led by global head of macro strategy Matthew Hornbach, anticipate a potential rebound in Treasury bonds. They suggest that upcoming economic data might be weaker than expected, which could favor Treasury securities, per the above-mentioned source.

JPMorgan's Analysis: Yields at Desirable Levels

JPMorgan recommends buying five-year notes, noting that yields have risen to levels last observed in December. However, they caution that market expectations for early interest rate cuts by central banks might be overly optimistic. Notably, several investors expect a 75-bps rate cut this year.

Recent Yield Increase and Rate Cut Speculations

The yield on five-year U.S. bonds rose by 22 basis points last week, a surge not seen since mid-May. Market speculation about Federal Reserve rate cuts has diminished, reflected in the decreased likelihood of a rate reduction in March.

The upcoming data might support the Federal Reserve's goal of a 'soft landing', potentially leading to interest rate reductions later this year. However, there is considerable uncertainty about when and how quickly the Fed might ease rates. This depends totally on economic data points and levels of inflation.

Timing of Interest Rate Cuts

JPMorgan anticipates the first rate cut by the Federal Reserve to occur in June, rather than in May as currently priced in by swap contracts. Morgan Stanley expects central banks in the United States and Europe to be in focus by mid-March, with markets anticipating at least one rate cut by the spring. If this happens, bond prices would jump.

ETFs in Focus

Against this backdrop, investors may consider buying the latest dip in intermediate-term bond ETFs.

Vanguard Intermediate-Term Treasury ETF (VGIT - Free Report) – Down 0.8% YTD; Yields 2.75% annually

SPDR Portfolio Intermediate Term Treasury ETF (SPTI - Free Report) – Down 0.6%; Yields 3.02% annually

iShares Intermediate Govt/Credit Bond ETF (GVI - Free Report) – Down 0.3%; yields 2.76% annually

There is a lot of corporate bonds that can also be played currently. These are:

Vanguard Intermediate-Term Corporate Bond ETF (VCIT - Free Report) – Down 1.2% YTD; Yields 3.76% annually

Vanguard Intermediate-Term Bond ETF (BIV - Free Report) – Down 1.2% YTD; Yields 3.13% annually

Invesco BulletShares 2029 High Yield Corporate Bond ETF (BSJT - Free Report) – Down 0.4% YTD; Yields 6.45% annually

iShares 5-10 Year Investment Grade Corporate Bond ETF (IGIB - Free Report) – Down 0.6% YTD; yields 3.83% annually


Published in