Goldman: What Could Short-Circuit The Sell-Off In Rates?

Late on Friday Goldman Sachs wrote “10-Year U.S. Tsy yields now sit meaningfully above our fair value estimate of 4.2-4.3%.”

• “On fundamental grounds, we see risks for rates as tilted to the downside from here.”
• “Current medium-term real yields are already above the long-run potential growth rate and our expectation of a ‘Q4 growth pothole,’ which should become more apparent in the data towards year-end.”
• “However, we view these levels as imprecise guideposts at best.”
• “A more reliable way to gauge when yields may be locally topping out is to look for potential catalysts - a stretch of soft economic data, rising pressures in other growth-sensitive financial assets (like equities), or even rising financial stability concerns.”
• “In the absence of these catalysts, the current move could extend, but the odds of a sharper reversal would also rise alongside this extension, in our view.”