Turbulence in stock markets and a drop in energy costs have helped drive major government bond yields lower and may continue to affect them, according to Goldman Sachs. “The pieces are in place for yields to settle into a range and rate volatility to decline,” Goldman strategists led by William Marshall wrote in a note late Friday, adding that “it hinges somewhat on some diminished risk asset volatility and energy price relief holding.” The 10-year Treasury yield is around 4.87% after rising above 5.25% in early October. The MOVE Index, which measures Treasury option volatility, sits around 93, after surpassing 113 in early October. Here’s what Goldman sees ahead for major government bond yields: U.S. If risk assets move into a more stable phase, yields can start to establish a more well-defined range (4.75-5.0% on 10-year Treasurys), with room for rate volatility to moderate Europe: Outperformance of the 5-year is expected on the curve. The market has taken out about 40 basis points of European Central Bank hike risk through the end of 2027 since the late September peak in yields, which “is sensible as improving sentiment on geopolitical risk is consistent with a reduction in oil and gas risk premium, and ultimately more modest price pressures,” though “we are approaching a limit as to how much very front-end pricing can decline in the near-term, absent more concrete evidence of progress with respect to energy supply, or clarity on winter weather” U.K.: Goldman still sees a “relatively high hurdle for sustained additional front-end cheapening.” But “renewed energy concerns could nevertheless bring hike risks forward, leaving the very front end vulnerable to flattening even as we retain our medium-term steepening bias on the broader curve.” In contrast, “inflation risk premium remains above its mid-October level. Sustained energy relief could allow that premium to compress further, providing an additional channel of support for Gilts” Canada: Any hawkish repricing driven by U.S. spillovers would be an opportunity to re-engage in front-end longs
Goldman says ‘the pieces are in place’ for a shift in Treasury yields, global 10-years
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