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- Jim Caron said the investor concern implied by rising bond yields is overdone.
- Yields on US Treasurys spiked this past week in response to President Donald Trump's tax bill.
- The Morgan Stanley strategist said the fiscal deficit has long been a well-known issue.
The recent surge in US bond yields is overblown, said a chief investment officer at Morgan Stanley.
He's referring to yields on 10- and 30-year US Treasurys, which rose as high as 4.6% and 5.2%, respectively, this past week. The increases came after the decision by Moody's to downgrade its rating on US debt on May 16, and accelerated in the following week on concerns over the sweeping budget bill advancing through Congress.
While commentators have said fears about the swelling budget deficit are behind the week's bond-market jitters, Jim Caron, chief investment officer of the portfolio solutions group at Morgan Stanley Investment Management, told Business Insider he thinks the issue is being blown out of proportion.
He said markets were already aware that the national deficit is a problem, so Trump's "big beautiful bill" that passed in the House of Representatives on Thursday isn't really the issue.
Caron said he refers to those who believe Treasurys could lose their safe-haven status as "tourists in the market."
Morgan Stanley
The GOP's sweeping budget bill aims to extend the 2017 tax cuts, slash Medicaid spending and supplemental nutrition assistance, and increase military spending. Estimates vary, but the bill could add as much as $4 trillion to the government's deficit over the next 10 years.
Caron doesn't necessarily think a widening deficit will erode the perception of Treasurys as ultra-safe investments.
"I wouldn't say that there's a straight line connection to some of the deficit and tax talk," he said. "And that's kind of what everybody's trying to conflate and put together."
"I think it would be refreshing to absolutely take a deeper look at that and just say, 'look, the fiscal situation is not new news,'" Caron said.
The IMF expects the US federal deficit to dip from 7.3% of GDP last year to 6.5% this year.
"The market is creating excess hysteria around it," Caron said of the deficit debate.
The Morgan Stanley strategist argued that rising bond yields are a global issue, and not just a US problem. Long-dated bonds in the UK, Germany, and Japan have soared this year on fears over those countries' fiscal outlooks.
"I always find it to be a very novice explanation when people say, 'oh, I think the US is losing its status and the dollar is going to lose its reserve status,'" Caron said. "If that were actually even 1% true, the markets would be selling off in a massive, massive way."