Goldman raises U.S. Treasury yield forecasts on more hawkish Fed

Goldman Sachs said on Thursday that it has raised its forecasts on U.S. Treasury yields for this year, citing more broad-based and persistent price pressures and a more hawkish pivot by the Federal Reserve.

The investment bank now expects benchmark 10-year yields to rise to 2.7% by year-end, up from its previous forecast of 2.25%. It also expects two-year yields to rise to 2.9% and 3.15% at year-end 2022 and 2023, respectively.

For 30-year bonds, the bank expects a more gradual increase, with the yields likely to end 2022 at 2.75%.

Goldman also expects the yield curve between two-year and 10-year notes to invert modestly by year-end, but said that should not necessarily be taken as an indicator that a recession is likely to follow.

“The nominal curve tends to invert more easily in a high inflation environment, and we could see earlier and/or deeper curve inversions this cycle. In such an environment, a deeper nominal curve inversion may be needed to produce the same recession odds in models as seen in more recent business cycles,” Goldman said.

Risks to Goldman's view include if the war in Ukraine deescalates or if inflation is more persistent, which could lead to even higher yields, while the opposite scenario could result in lower yields, the bank said.

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