Morgan Stanley mentioned in two recent reports that asset classes such as stocks and commodities have historically high valuations, and that investors are more exposed to them than ever before, and that once risk-free interest rates rise, asset adjustments are inevitable. In a recent report from Morgan Stanley, Michael Wilson, chief equity strategist, wrote that, taking all factors together, we believe 10-year Treasury yields will rise sharply in the next 3-6 months.

In fact, by Tuesday's close, the yield on 10-year Treasuries had risen 8 basis points to 0.655 per cent, hitting 0.661 per cent at one point, the highest since July 13 and the biggest increase since June 5.The spread between two-year and 10-year Treasuries widened by nearly 6 basis points, the biggest increase since June and the biggest spread in a month.

This weekThe US will issue a record $112 billion of Treasuries and bets on a steeper yield curve are making a comeback.

Michael Wilson wrote that the conclusion that 10-year Treasury yields will rise in 3-6 months is based on three factors:

First of all, although the United States and the world will now face three major uncertaintiesThat is, the number of cases of novel coronavirus infection has increased, the uncertainty of the US election and the potential fiscal stimulus have greatly declined.But Morgan Stanley is still confident of a rapid and sustained economic recovery.

Second,Due to the sharp increase in operating leverage, corporate profits next year are likely to far exceed investors' expectations.

Third, although the depth of the recession is unprecedented,But personal disposable income growth in the second quarter has never been so high.. This is a direct consequence of massive fiscal stimulus aimed at offsetting the impact of the epidemic on employment.

The combined effect on interest rates is that the rise in 10-year Treasury yields has only just begun, and bond yields will be much higher in the next quarter to six months.

So is Michael Wilson's judgment that US bond yields will rise in 3-6 months?The analyst made an impressive prediction this year that when he plummeted in March, he raised the target of the S & P 500 to 3350 in December! The prediction is going in the right direction, but the S & P 500 has achieved its "goal" ahead of schedule.

The impact of rising US bond yields on US stocks is obvious. There will be surprises in the sectors that are most leveraged to the economic recovery, with opportunities hidden in stocks with higher operating leverage and lower expectations.This is why the market for value stocks has outperformed technology stocks or growth stocks recently.

The impact of the rise in US bond yields on gold is obvious. An important factor supporting the strength of gold prices is that US bond yields are too low.While Treasury yields rose, gold fell below the historic $2000 mark on Tuesday and below $1900 on Wednesday.