Strong economic data should drive the 10-year U.S. bond yield to 1.9 percent by the end of 2021, according to the latest forecast released Thursday by Goldman Sachs.
Expectations that government stimulus packages and a nationwide coronavirus vaccination program are driving a rebound in the U.S. economy have pushed U.S. bond yields higher in recent weeks, which has had a huge impact on global markets and put pressure on U.S. stocks.
The 10-year U.S. bond yield, which was still just 0.930 percent at the beginning of 2021, touched a high of 1.614 percent on Feb. 25 and was near 1.55 percent on Thursday.
A Goldman Sachs economic research report stated.
“While we see some near-term correction, we believe strong economic data will lead yields to resume their upward trajectory in the coming quarters, so we have revised our expectations.”
The 10-year Treasury yield last reached 1.9% in January 2020, which was before the New Crown Epidemic hit the U.S. economy in full force and the Federal Reserve moved to lower interest rates to their lowest level. Recent data shows some signs of improvement in the U.S. economy with the introduction of the new crown vaccine.
Rising U.S. bond yields tend to diminish the appeal of stocks and other relatively risky investments. U.S. stocks closed sharply lower Thursday, with the Nasdaq down about 10 percent from its record high in February, after a speech by Federal Reserve Chairman Jerome Powell disappointed investors worried about rising U.S. long-term bond yields.
Goldman Sachs also predicted that yields on other countries’ sovereign bonds will also rise sharply. Goldman expects the yield on the 10-year German bund, which has been in negative territory since May 2019, to rise to 0% by the end of the year; the yield on the 10-year U.K. bund is expected to climb to 1.10%, compared with 0.733% currently; and the yield on the 10-year Japanese bund is expected to rise to 0.3%, compared with 0.136% currently.
Goldman Sachs also expects the break-even Inflation rate on 10-year inflation-protected Treasuries to rise to 2.4% to 2.45% from about 2.2% currently, due to “unchanged interest rates from the Fed, strong inflation expectations, and a significant reduction in idle funds.
It is no coincidence that Holland International Group also believes that the U.S. bond yield curve will continue to soar, and the investment bank’s expectations are higher than Goldman Sachs. The investment bank’s head of research for the Americas, Padhraic Garvey, said in a report Thursday that fixed-income investors have become cautious about holding long-term bonds and predicted that the 10-year U.S. bond yield will climb to 2 percent this year.
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