Goldman Adjust 10-Year Tsy View

Goldman Sachs note that “a range of recent economic data have come in softer than expected. This weakness has manifested alongside a second successive downside miss in inflation, and a Fed that appears more reluctant to push back against easing financial conditions.”

• “Not only is the market's peak rate below Fed projections, but it appears investors are either expecting easing because of a fairly rapid return to “normal” levels of inflation or placing fairly high odds of a recession shortly after the peak.
• “The FCI easing seen over the past month or so should reduce the headwinds the economy faces next year. However, it may be a few months before the state of the world becomes clear, and over that period, there aren’t obvious catalysts to reprice yields higher.”
• “As a result, we are revising lower our yield projections, with the largest adjustments in Q1 & Q2 of ’23 - we now see a peak 10-Year yield of 4.25% (4.50% previously), occurring in Q323 (as opposed to Q223).”
• “We note that the change to our YE23 10-Year yield forecast is modest - 4.20% (4.30% previously). The reason for this smaller change is that we expect our economists’ non-recessionary baseline to be more apparent by that time.”