Morgan Stanley sees big plunge in Treasury yields

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'Boring, but beautiful' fixed income strategy

If early returns hold, 2016 is shaping up as another year where the bond market's demise has been greatly exaggerated.

Numerous forecasts around Wall Street warned investors away from fixed income, particularly longer duration U.S. government issues. The thinking was that the Fed's rate-hiking trajectory would push up Treasury yields, eroding prices and sending investors to bond-like equities.

That theory has pretty much blown up in January.

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Wobbly economic growth coupled with slumping oil prices and contagion fears from a hard landing in China substantially lowered expectations for rate hikes. With stock market indexes tumbling, investors have flocked to bonds as a safe haven. Funds that track long-dated Treasurys have crushed the stock market and lured in strong investor cash flows.

While many of their colleagues on the Street warned investors to avoid long-dated bonds, Morgan Stanley strategists believe government fixed income both in the U.S. and a number of other countries represent great value.