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Goldman: Are 2% Long Run Real Yields A Buy?

US TSYS/TIPS

Late on Friday Goldman Sachs noted that “the real yield on 30-year TIPS has hovered around 2% for the past few weeks, with signs of some support for bonds around current levels - our fund positioning indicator suggests that real money accounts have continued to increase their overweight positions gradually over the past month.”

  • “From a historical perspective, since the early 1990s, 10y and 30y TIPS-implied real yields have rarely exceeded the 2% level outside of the mid-1990s to early 2000s period.”
  • “We have previously argued that outside of periods with low inflation, medium- and long-term real rates tended to track potential GDP growth rates, or at least have not traded at a significant discount to them.”
  • “Outside of a similar productivity and growth boost from widespread adoption of generative AI technology, we do not see a driver for a sustainable increase in either potential growth or long-run real rates from current levels.”
  • “Indeed, on a tactical basis, with risks skewed towards a softening of data in Q4, we have argued that these yields are more likely to set for a modest decline rather than a sharp selloff.”
  • “That said, more structurally, the case for going long at current levels rests not on anticipation of a structural decline in real yields (we think current levels are “fair” from a medium-term perspective), but rather on our view that earning 2% real yields over a longer horizon with little to no credit risk is a reasonable return, and that bonds should have reasonable “insurance” value in the event of either a sharp growth slowdown or an outright recession.”
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Late on Friday Goldman Sachs noted that “the real yield on 30-year TIPS has hovered around 2% for the past few weeks, with signs of some support for bonds around current levels - our fund positioning indicator suggests that real money accounts have continued to increase their overweight positions gradually over the past month.”

  • “From a historical perspective, since the early 1990s, 10y and 30y TIPS-implied real yields have rarely exceeded the 2% level outside of the mid-1990s to early 2000s period.”
  • “We have previously argued that outside of periods with low inflation, medium- and long-term real rates tended to track potential GDP growth rates, or at least have not traded at a significant discount to them.”
  • “Outside of a similar productivity and growth boost from widespread adoption of generative AI technology, we do not see a driver for a sustainable increase in either potential growth or long-run real rates from current levels.”
  • “Indeed, on a tactical basis, with risks skewed towards a softening of data in Q4, we have argued that these yields are more likely to set for a modest decline rather than a sharp selloff.”
  • “That said, more structurally, the case for going long at current levels rests not on anticipation of a structural decline in real yields (we think current levels are “fair” from a medium-term perspective), but rather on our view that earning 2% real yields over a longer horizon with little to no credit risk is a reasonable return, and that bonds should have reasonable “insurance” value in the event of either a sharp growth slowdown or an outright recession.”