Goldman Sachs Global Rates Trader: Term Premia Take a Breather
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Goldman Sachs notes that term premia have temporarily eased after a sharp run-up, driven primarily by technical factors and position unwinds rather than a fundamental trend reversal. The 10-year US Treasury yield has retreated roughly 15 basis points from recent highs, with declining term premia accounting for the bulk of that move. Speculative short positions had already been significantly reduced before the pullback, amplifying the rally.
However, Goldman maintains a cautious stance on rates markets, arguing that structural supports for term premia remain intact. Fiscal deficit projections — estimated at 6.5% of GDP for 2026 — continue to pose upside risk. Sticky inflation data, with core PCE at 2.8%, keeps the Federal Reserve on hold and limits downside for yields. Additionally, slowing central bank purchases, particularly reduced Japanese demand for Treasuries, weakens a key demand pillar.
Goldman expects term premia to re-expand over coming months, with the 10-year yield potentially reaching 4.75% by year-end. The firm recommends tactically shorting 10-year Treasury futures at current levels and maintaining 2s10s curve steepener positions targeting a 50 basis point spread. In Europe, the 10-year German Bund faces similar term premia pressure, with a year-end target of 2.80%. Key downside risk includes a downside nonfarm payrolls surprise below 150,000, which could drive yields sharply lower to 4.30%.
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