Morgan Stanley Diagnoses the End of the Era of Falling Long-Term Interest Rates

Morgan Stanley has defined the macroeconomic environment following COVID-19 as the end of the era of falling long-term interest rates. The trend of long-term government bonds acting as a buffer for risk assets has weakened, and it has been stated that fluctuations in interest rates, oil, gold, and cryptocurrencies should be viewed within the same systemic changes. Mike Wilson, CIO of Morgan Stanley, mentioned in 'Thoughts on the Market' that the current market is similar to the period immediately after World War II, citing strong nominal GDP growth, persistent inflation, and increased economic volatility as evidence. He distinguished between the environment from 1982 to 2020 and the current phase, predicting that inflation's return will shorten economic cycles and accelerate policy responses. Wilson emphasized that 'the long bull market for bonds ended with COVID-19,' explaining that this signifies the end of the trend decline in U.S. Treasury yields. He viewed the backdrop for rising interest rates not only as a result of fiscal deficits and debt issues but also due to strong nominal GDP growth and active fiscal policies. Recently, the U.S. Treasury's bond buyback has been interpreted as a tool to stabilize market functions and financial conditions, indicating that the asset pricing methods based on falling interest rates are now under scrutiny.

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