Forex Flash: Tracing the potential rise of US bond yields – Goldman Sachs

“Simply rolling along the path towards the first US rate hike and the end of the balance sheet expansion should put steady upward pressure on bond yields over the next few years. This may be mitigated to a degree this year, as the market shifts towards a more dovish view of the Fed’s reaction function.” states the Economics Research Team at Goldman Sachs. However, this is likely to be a temporary reprieve. The exercises here clearly highlight the risk that yields may rise faster over the next few years than our current forecasts, or the forwards, suggest.

Moreover, “We expect the healing of the private sector to pave the way for a period of above-trend growth in the US once the intense fiscal restraint of the next few quarters eases.” As the market looks to the prospect of a more ‘normal’ recovery phase, the question of when and how quickly US government (and other safe sovereign) bond yields might rise is even more sharply in focus.