Goldman: Yields Settling Into Their New Range

Goldman Sachs note that “economic data have largely continued to surprise to the downside.”

• “The cumulative misses so far have taken our US economic surprises score to the lowest level since late April this year.”
• “Additionally, bearish market sentiment appears to have turned a corner and our fund positioning indicator suggests that real money investors have increased their overweights on duration.”
• “We previously noted that the bond market rally then had room to extend as investors felt their way to the bottom end of the range, particularly if supported by softer data.”
• “This has happened to an extent, though we suspect it will be hard to push much lower without (further) unambiguously weaker data.”
• “In the meantime, we note that although realized daily yield changes remain large, the magnitude of weekly changes in 10y yields has dropped, suggesting to us that yields may be stabilizing at current levels.”
• “Over the next year, we expect 10y UST yields will form a range with a midpoint around 4.5-4.6%. Our forecast for YE2024, at 4.55% reflects this view.”