Goldman Sachs: Strong Employment Raises the Floor for US Treasury Yields
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Goldman Sachs argues that robust US employment data has raised the floor for Treasury yields, although this is more likely to result in the Federal Reserve maintaining a prolonged pause rather than initiating a new rate-hike cycle. Reflecting higher real rates and a steeper policy rate path floor, Goldman Sachs has revised its year-end 2026 forecast for the 10-year US Treasury yield upward from 4.1% to 4.4%. The 2-year yield forecast stands at 3.8%.
The spillover effects to other G10 markets are expected to be relatively contained, as current yields in most G10 markets already exceed Goldman Sachs' predictions. In the UK, the 10-year Gilt yield forecast was modestly raised by 10 basis points to 4.5%. However, spread signals indicate that supply is not the core issue for UK Gilts. Meanwhile, earlier rate hikes and weaker growth constrain the Eurozone, limiting the potential for a full transmission of higher US rate floors.
In Japan, hawkish communication from the Bank of Japan could trigger bear flattening, with the 5-year tenor potentially underperforming. Overall, resilient employment narrows the downside space for US rates, emphasizing a prolonged policy pause over rapid easing.
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