Europe's economic sluggishness has led Goldman Sachs to trim its year-end Treasury-yield forecast, just as it has led some Federal Reserve officials to raise the prospect of pushing back the timing for interest rate hikes.
The eurozone eked out 0.1 percent growth in the second quarter from the first. The Fed is concerned that Europe's weakness could spill over to the United States.
If the U.S. economy does suffer, that by itself could push down bond yields. And the economic stagnation in Europe could lead investors to dump European bonds in favor of U.S. bonds as European yields fall.
Goldman reduced its year-end forecast for the 10-year Treasury yield to 2.5 percent from 3 percent previously,
CNBC reports.
The yield stood at 2.2 percent late Monday and closed 2013 at 3.04 percent.
Goldman doesn't see the yield hitting 3 percent until the end of 2015. It predicts 3.5 percent yield for year-end 2016 and 3.75 percent for year-end 2017.
Volatility in the Treasury market surged to a 13-month high last week, as measured by the Bank of America MOVE index, amid concern about the global economy, Fed policy, the stock market's drop, geopolitical turmoil and the Ebola virus.
"We're hypersensitive now to bad news as to risk assets," David Ader, head of U.S. government-bond strategy at CRT Capital Group, told
Bloomberg. "This is a very jittery market."
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