Recently, a trend of 「selling bonds to buy gold」 has emerged. However, Wall Street investment bank Morgan Stanley maintains that US Treasuries are the superior long-term choice. According to market insights, the bank released a report on October 24, indicating that while foreign official investors may recently shift funds from US Treasuries to gold, historical data suggests that this strategy might not be wise in the medium to long term. As downward risks to economic activity increase, holding US Treasuries is becoming more attractive.

Recent market dynamics show significant changes in the asset allocation of foreign official institutions. The report cites data from the New York Federal Reserve, indicating that from July 30 to October 22, 2025, the amount of US Treasuries held by foreign official and international accounts managed by the New York Fed fell by nearly $155 billion. Notably, these funds did not flow into the Fed's Foreign and International Monetary Authorities (FIMA) reverse repo facility.

Coincidentally, during this same period, gold prices, which had been stagnant since mid-April 2025, began a sharp upward trend, rising by over 25%. Therefore, the report expresses skepticism that foreign official investors may have utilized funds from selling US Treasuries to purchase gold.

Despite the potential for sell-off pressure, the US Treasury market remains robust. Analyst Matthew Hornbach notes:

Although demand for US Treasuries from foreign official investors might decrease, the performance of Treasuries has still been quite impressive since July.

The report emphasizes that the strategy of selling US Treasuries to buy gold may yield 「disappointing」 results in the medium to long term from a total return perspective.

Historical Context: Selling US Treasuries to Buy Gold is Not Sustainable Although the logic behind 「selling bonds to buy gold」 seems straightforward, Morgan Stanley questions the long-term effectiveness of this strategy based on historical data.

The report clearly states that over the past 50 years, 「the performance of gold during any given decade has not matched that of US Treasuries.」 The report cites that from 1975 to 1980, gold surged amid rising inflation; however, from 1980 to 1985, as inflation declined and the Fed eased rates, gold recorded negative returns.

Additionally, regarding volatility, the report shows that gold's total return volatility is significantly higher than that of medium-term US Treasuries, comparable to long-term US Treasuries. For most central banks targeting a management of short- to medium-term Treasury indices, the motivation to shift to the more volatile gold assets is questionable.

Sell-Off Trends are Not Worrisome; US Treasuries Will "Shine" Again Morgan Stanley expresses no concern over the actions of foreign official investors reducing their holdings in US Treasuries, noting that this behavior is part of a long-term trend that has persisted for over a decade. Data shows that foreign official investors hold a decreasing percentage of US Treasuries (excluding the Fed's SOMA portfolio), which has fallen from 41% in mid-2014 to the current level of 16%. The report specifically mentions that official Chinese institutions now hold only 3% of market circulation. This indicates that the market has gradually digested this structural change.

Looking ahead, Morgan Stanley believes that the environment for holding US Treasuries is becoming increasingly attractive due to rising downward risks to economic activity. The report analyzes that the market’s pricing of future Fed policy should lean towards a more dovish path compared to the baseline scenario. The report argues that as the market prices in a lower terminal rate for the Fed, US Treasury yields should continue to decline.

In conclusion, Morgan Stanley asserts that despite gold currently attracting all the attention, investors should prepare for the impending 「moment to shine」 for US Treasuries. The bank reiterates multiple trading recommendations in the report, including going long on 5-year US Treasuries (UST 5y) and trading a steep yield curve (UST 3s30s).