Gold dips to signal real yields bottom – Morgan Stanley


The 10-year Treasury yield was 14% in 1984 and is now just half of one percent. For most of that time, dips in Treasury yields were a reliable indicator of economic weakness ahead. Today, that no longer seems to be the case. Lisa Shalett from Morgan Stanley believes this has important ramifications for portfolio construction and is closely watching falls in gold prices which would warn a bottom of real yields.

Key quotes

“Long-term government bonds may no longer be the best option for yield or capital preservation with rates so low. Indeed, the ‘real’ yield you stand to earn on a 10-year Treasury note is now negative one percent when inflation expectations of around 1.5% are factored in. Also, investors have grown accustomed to valuing equities based on their earnings potential relative to the yield on a Treasury. That method may not work as well going forward and could be fueling some of the excessive valuations we’re seeing now, especially in tech stocks.”

“Action by the Fed has so far proven effective at relieving the pandemic’s worst potential economic damage. That said, these policies can come at a cost. I’ve recently discussed high valuations in tech and other growth stocks. To this, I’ll add apparent excessive risk-taking in corporate credit markets, the rapid appreciation of commodities like gold, and the depreciation of the US dollar.”

“There is also potential for longer-term interest rates to move higher if inflation expectations continue to rise. Investors should watch for a potential dip in gold prices, which could signal that real yields are set to bottom.”

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News


Latest Forex News

Editors’ Picks

EUR/USD remains bid and approaches 1.1650 after US data

The persevering selling pressure in the greenback helps EUR/USD advancing to the area of daily highs near 1.1650 on Friday. The data from the US showed on Friday that the economic activity in the private sector continued to expand at a robust pace in early October.

EUR/USD News

GBP/USD treads water near 1.3800 after mixed UK data

GBP/USD came under bearish pressure in the early European session after the data from the UK showed an unexpected contraction in September Retail Sales. However, the British pound managed to pare its losses with the Markit PMI figures surpassing analysts' estimates.

GBP/USD News

GBP/USD treads water near 1.3800 after mixed UK data

GBP/USD came under bearish pressure in the early European session after the data from the UK showed an unexpected contraction in September Retail Sales. However, the British pound managed to pare its losses with the Markit PMI figures surpassing analysts' estimates.

GBP/USD News

Crypto bulls unfazed by flash crash

BTC closed more than 5% lower on the Thursday session, but buyers have stepped in to hold the Tenkan-Sen as support. ETH action shows that the recent rejection has caused some indecision. XRP does not have far to move to initiate a massive bullish breakout.

Read more

Apple talks over battery supplies for EV stall-Reuters

Apple (AAPL) is on a steady move higher ahead of results next week. We have had solid earnings from big names already such as Tesla (TSLA) and Netflix (NFLX), but Apple is the biggest one of all and will be the highlight of the earnings season for many.

Read more

Forex MAJORS

Cryptocurrencies

Signatures