Morgan Stanley IM Sees Rising Bond Yields as Symptom of Robust Growth

Caron, chief investment officer of the Portfolio Solutions Group, notes that the current high-yield environment stems from firm labor markets and productivity gains. With nominal GDP growth—the sum of real growth and inflation—hovering near 6.5 percent, the firm remains bullish on US and Japanese equities. While the 10-year US Treasury yield touched 5.31 percent in early October, Caron insists these levels are justified by robust third-quarter earnings expectations among major financial institutions.

Looking toward potential political shifts, the firm anticipates that mid-term election outcomes could narrow investment focus toward established, large-cap companies and AI hyperscalers. Consequently, Morgan Stanley IM has reduced interest rate sensitivities, choosing to remain underweight on bond duration risk while favoring credit. Regarding private markets, Caron suggests the industry is moving past a crowded correction phase. With exit strategies finally yielding capital, the firm is prepared to deploy funds into private credit sectors like software, which have shown signs of a rebound after earlier volatility.