Source: Fortune
Summary
The US bond market is experiencing increased volatility, with 10-year Treasury yields ranging from 3.96% to 4.66% this year. Morgan Stanley’s Jim Caron believes that the new Federal Reserve chairman, Kevin Warsh, is likely to change investor focus from the long end of the yield curve to the short end. Warsh’s task force strategy aims to collect more real-time data and reduce forward guidance, potentially leading to more volatility in short-term bonds and a smoothing of the longer end of the yield curve.
Our Reading
The announcement sounds familiar.
Warsh’s strategy may undo investors’ habit of focusing on the long end of the yield curve. Morgan Stanley’s Jim Caron expects more volatility in short-term bonds and a smoothing of the longer end. The Fed’s new approach may result in more reactive policy in the short term and less forthcoming communication over the longer term. This could lead to more volatility in short-term bonds and a stabilization of longer-term interest rates.
The numbers tell one story, but Warsh’s plan may be a deliberate attempt to shift investor focus and reduce volatility in the longer end of the yield curve.
Author: Evan Null
