The market may have turned a corner on inflation fears.<\/p>\n
But according to Morgan Stanley's Matthew Hornbach, it should have happened sooner.<\/p>\n
His research shows the rise in Treasury yields will not have a long-lasting impact on the market because it's not the type of increase typically associated with weakness in stocks.<\/p>\n
"We're not seeing interest rates spike higher. We're not seeing a taper tantrum like we did in 2013 when interest rates rose 150 basis points in three months," the firm's global head of macro strategy told CNBC's "Trading Nation" on Tuesday.<\/p>\n
But it took Federal Reserve Chairman Jerome Powell's testimony Tuesday before the Senate Banking Committee to quell jitters. On the heels of his comments, the Dow staged a massive 360-point comeback and closed almost 16 points higher.<\/p>\n
"Powell talked about the higher interest rates that we've seen over the past six months as not really being a problem because of the nature in which interest rates have risen," Hornbach said.<\/p>\n
Hornbach lists improvements in Covid-19 case statistics, manufacturing data and anticipation of another historic virus aid package for the tick up in yields. As of Tuesday's close, the benchmark 10-year Treasury note yield was at 1.34%. It's up almost 24% over the past four weeks but down about 9% over the last year.<\/p>\n
"The Fed also recognizes that it will have to keep an extraordinary amount of accommodation in the marketplace, which just naturally lends itself to being on hold with short-term interest rates at zero for longer," he added. "Those two factors combined can get the yield curve to continue to steepen up and get those long-term interest rates to keep pushing up towards 2%."<\/p>\n
Hornbach said he doesn't see an issue until the 10-year yield gets to 2.5%.<\/p>\n
"Then, I think you might see a different type of reaction in risky assets \u2014 including the equity market," Hornbach said.<\/p>\n