Goldman revises up long-term US bond yield forecasts

Goldman Sachs has revised up its long-term forecasts for 10-year US Treasury bond yeilds on account of the market’s reaction to tightening global monetary conditions coming from the US.

The bank’s analysts still expect yields at the start of 2014 to be between 2.75 and three per cent, but now think they will rise as high as four per cent by 2016.

They are not yet revising forecasts for other markets, indicating variation between the US markets compared with those in Europe and Japan.

As to the reasons leading us to make these changes, we would advance the following observations: The tightening in global monetary conditions is coming from the US. This is not unusual. What represents a departure from previous cycles is that the shift in benchmark rates is taking place mostly from a rebuild of the real term premium, admittedly from depressed levels. All else equal, a rise in long-dated discount factors should have a more material bearing on financial assets with cash flow distributions skewed to the more distant future.