Goldman Sachs Global Rates: Bond Sell-Off Momentum Exhausted
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Goldman Sachs argues that downside risks to yields are growing, even as markets trade hawkishly amid rising oil prices. The firm has lowered its front-end US Treasury yield forecasts to reflect a delayed Federal Reserve rate-cut timeline, now expecting reductions in September and December. By end-2026, 2-year and 10-year yields are projected at 3.20% and 4.10%, respectively, remaining below forward market levels. To express a limited-risk long position, Goldman recommends a 3m3y USD receiver spread with a 10.7bp net premium entry, a 25bp target, and a 4bp stop-loss.
Historically, oil shocks in 1990 and 2022 saw term premiums rise with crude prices, only falling after oil declined; Goldman expects a similar pattern. Economists raised their December 2026 headline and core PCE forecasts by 80bp and 20bp, respectively. In Europe, the ECB and BOE are expected to stay on hold next week. Goldman reduced its end-2026 10-year Bund yield forecast to 3.0% from 3.25%. Meanwhile, the UK 10-year yield forecast was raised to 4.25% from 4.0% due to delayed BOE cuts, though growth risks should eventually dominate. Japanese government bond forecasts remain unchanged at 2.0%. Sovereign spread forecasts for end-2026 were adjusted to 75bp for OAT-Bund, 85bp for BTP-Bund, and 55bp for Bonos-Bund.