Goldman Sachs Group Inc. joined JPMorgan Chase & Co. in pulling down its forecasts for U.S. Treasury yields, incorporating expectations for a prolonged hit from the U.S.-China trade war, along with the dovish shift by key central banks.
Goldman’s strategists slashed their year-end 10-year U.S. yield call to 1.75% -- matching JPMorgan’s updated prediction from May 31. That’s down from Goldman’s 2.80% projection reiterated last Sunday. Goldman also cut its yield forecasts for Japan, the euro region and other developed nations.
“The global rally in yields is likely to continue, driven by accommodative central banks, near-term weakness in data, and an asymmetric set of risks” including the trade war, Middle East tensions and Brexit, Goldman strategists led by Praveen Korapaty in New York, wrote in a note Wednesday.
- U.S. 10-year yields are seen rebounding somewhat to 1.90% by mid-2020
- Japan’s 10-year yields will breach the Bank of Japan’s tolerance zone by 10 basis points, hitting negative 0.3% by year-end
- German 10-year yields seen at negative 0.55% for year-end, versus 0.35% previously
- Ten-year gilts are forecast at 0.70% at year-end, against 1.85% before
The “substantial” forecast changes reflect both the new policy developments and global risks, and “a sense that the near-term trajectory of many of these drivers makes fading the bond rally a difficult proposition,” the Goldman strategists wrote. “In the U.S., we believe reassuring growth data and an eventual reduction in trade war risks are probably necessary for the Fed to cease easing once it begins,” they also said.
The new year-end forecast from the two Wall Street giants is still well above that of Germany’s second-biggest bank. Strategists at Commerzbank AG earlier this month projected 10-year yields will hit a record low of 1.25% by year-end. The yield was at 2.06% as of 7:58 a.m. in London.
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