MORGAN STANLEY: Here Are Our Interest Rate Forecasts For 7 'Taper' Scenarios

tapirThis is a tapir.

Everyone is now waiting for “the taper” to attack.

This is what the Federal Reserve is calling the moment it begins winding down the large-scale asset purchases it’s been using to keep interest rates low.

But the Fed hasn’t said when this will occur.

So in a note today, Morgan Stanley’s Matthew Hornbach lays out seven different scenarios modelling changes to treasury yields for when the taper does start.

Here’s the table:

morgan stanley hornbach yields taper

And Hornbach’s comment: 

Exhibit 4 shows our estimated impact on 5-, 10-, and 30-year Treasury yields under various tapering scenarios. The final column shows the ‘fair value’ level for 10-year Treasury yields under each of these tapering assumptions. For instance, if the Fed begins to taper purchases in July, we believe 10-year Treasury yields should lie between 2.25-2.30%.

Hornbach says he’s betting on the December start date, with September the earliest conceivable date.

“As a result, we believe 10-year Treasury yields above 2.15% are a buying opportunity,” he says.

The 10-year is right around 2.12% today.

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