Goldman: Bearish Impulse From Europe And Japan Offsets U.S. Yield Drag

Goldman Sachs write “notwithstanding the rally since the start of the year, global yield levels remain considerably above their early December lows. Much of this bearish impulse in global bond markets has originated in Europe following the ECB’s hawkish stance. Although the BoJ also delivered a hawkish surprise, the impact on global bond markets had been more muted.”

• “U.S. data suggestive of easing wage and price pressures have, on the other hand, exerted a downward pull on yields.”
• “Looking ahead, we think this geographical pattern of impulses can persist in the near term. With the U.S. economy likely facing a larger monetary policy drag on growth this quarter than in subsequent quarters, we expect the weaker tone will translate to a relatively muted move in yields - our Q123 10-Year U.S. Tsy yield projection is 3.65%, only marginally above current levels."
• “By contrast, we expect that an upgraded growth outlook, combined with a more assertive ECB will mean continued upward pressure on yields in Europe - we expect 10-Year Bund yields to hit 2.75% by end of the quarter.”
• “Finally, we note that continuing price pressures, combined with the BoJ’s YCC band widening, opens to door for further removal of policy accommodation, which will marginally boost the likelihood that bearish (rather than bullish) impulses to the bond market originate from Japan.”