Morgan Stanley strategists say Treasury yields have entered a decades-long uptrend that echoes the period after World War II, breaking with the disinflationary trend investors grew used to between 1982 and 2020. Wolfe Research separately warns that the resulting rise in long-term rates could pressure the hyperscalers funding today's AI buildout, with Nvidia's earnings and a Fed Chair speech due this week.
Morgan Stanley strategists led by chief U.S. equity strategist and chief investment officer Mike Wilson say economic cycles have increasingly resembled the post-World War II period, a shift the bank first forecast in 2021, when it said the 1982-2020 disinflationary dynamics were unlikely to hold for the following eight to ten years. Instead, the team wrote in a note on Monday, cycles are now driven by higher nominal GDP growth and persistent inflation well above 2%.
A reactive policy era, Morgan Stanley says
According to Morgan Stanley: “higher economic volatility and a more reactive monetary policy environment as inflation ebbs and flows” now define the backdrop. That marks a reversal from the 1982-2020 period, when a multi-decade Treasury bond bull market pushed yields as low as 0.5%.
Yields climb despite a bigger Treasury buyback
The U.S. Treasury said last week it would double its buyback of longer-dated Treasurys to bring down yields. Even so, the 30-year yield rose to its highest level in 19 years, while the 10-year yield climbed to a peak last reached in January 2025.
Morgan Stanley's thesis rests on the Kondratieff cycle, which points to 40- to 60-year swings between rising and falling rates. The bank now favors quality, large-cap stocks, AI adopters and the S&P 500 over international equities, and it is overweight financials, industrials and consumer discretionary names.
Wolfe Research flags AI capex risk
Wolfe Research, cited by Investing.com, said the 2-year Treasury yield rose 6 basis points last week, the 10-year added 4 basis points and the 30-year gained 1 basis point. The firm tied the broader jump in yields since late June to a new, untested Federal Reserve chair, with investors demanding a higher term premium to hold longer-term bonds. It expects continued volatility this week: Nvidia reports earnings after Wednesday's close, the July PCE inflation report lands the same day, and Fed Chair Kevin Warsh speaks at the Kansas City Fed's Jackson Hole symposium on Friday.
Wolfe said keeping long-term rates low serves policymakers' interests given how much hyperscalers now lean on fixed-income markets to fund AI capital spending, against a backdrop of record government debt. Morgan Stanley points to a related strain lower down the chain: semiconductor stocks have followed silver stocks with a four-month lag, suggesting chipmakers hit by the rotation out of early-cycle AI names are unlikely to retake market leadership soon.
Sources: MarketWatch, Investing.com
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