Goldman Sachs has indicated that bonds are growing more attractive due to easing inflation and the conclusion of central bank policy tightening. This comes in the wake of a worldwide bond rally and conjecture that the US Federal Reserve and Bank of England have ceased their rate hikes. The firm has adjusted its bond recommendation to neutral, marking the first such change since June 2020.
This shift occurs against a backdrop of an ongoing bond selloff, positive data surprises, and the influence of rising long-dated bond yields on the economy. Goldman Sachs' analysis anticipates 10-year Treasury yields to hover around 4.6% over the next year, aligning closely with the 300-year average. Despite potential yield overshoots due to bond supply worries, these are projected to be short-lived.
Federal Reserve officials concur with this perspective, asserting that the recent escalation in Treasury yields, equivalent to about four rate increases according to Goldman Sachs' analysis, has diminished the necessity for additional rate hikes.
Despite these circumstances and their neutral bond position, Goldman Sachs declined from recommending an overweight stance on bonds in September, attributing this decision to the robust health of the US economy. The firm anticipates a slowdown in US growth in Q4 but dismisses the possibility of a recession.
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