25 April 2024

Goldman Sachs: Treasury Yields Begin Trend Upward

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With Treasury yields topping 2.7 percent for the first time since August 2011, Goldman Sachs forecasts a long-term upward trend starting. Their forecast calls for yields in 2014 at 2.75 to 3.00 percent and will climb to 4.00 percent by 2016.

Yields moved to a near 3-year high following better-than-expected payrolls number on Friday on expectations that the positive data will prompt the Federal Reserve to start tapering the current bond purchase program. 

From a research note released Sunday by Francisco Garzarelli, head of market research for Europe at Goldman Sachs: "Factors driving yields higher include the improving outlook for growth in the U.S. (and partly also in Europe), a decline in systemic risks stemming from the euro area, and the reduction in the pace of Fed purchases…In this regard, our U.S. Economics team now calls for the Fed to announce its intention to taper its monthly purchases of Treasuries and Agency MBS (mortgage backed securities) in September.”

The bond sell-off began on May 22, after the minutes of the Fed's policy meeting signaled that its bond-buying program, which has suppressed yields and boosted stocks, could soon be tapered. Fed Chairman Ben Bernanke echoed these comments at a press meeting in June, suggesting that asset purchases could be scaled back later this year, if economic data continued to show improvement.

Economic data has been improving, with the Department of Labor reporting on Friday that 195,000 new non-farm payroll jobs were created in June, better than estimates of 165,000. The unemployment rate was unchanged at 7.6 percent.
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