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U.S. 10-yr Treasury yield to hit 1.9% by year end -Goldman Sachs

03/04/2021 | 05:46pm EDT

March 4 (Reuters) - Stronger economic data should push the benchmark 10-year U.S. Treasury yield up to 1.9% by the end of 2021, according to Goldman Sachs' latest forecast released on Thursday.

Expectations that government stimulus and a countrywide coronavirus vaccination program are fueling an economic rebound in the United States have pushed Treasury yields higher in recent weeks, a move that has reverberated throughout global markets and weighed on U.S. stocks.

The 10-year yield, which began 2021 at 0.930%, hit a high of 1.614% on Feb. 25 and was trading around 1.55% on Thursday.

"While we think there will be some near-term consolidation, we believe strong economic data will lead yields to resume their upward trajectory in the coming quarters, and we therefore revise up our projections," a Goldman Sachs Economics Research report said.

The 10-year yield last reached 1.9% in January 2020, which was before the full force of the coronavirus pandemic hit the U.S. economy and the Federal Reserve took action to cut interest rates to rock bottom levels. Recent data has shown some signs of economic improvement as the roll out of COVID-19 vaccines is underway.

Rising Treasury yields tend to dim the allure of stocks and other comparatively risky investments. Wall Street ended sharply lower on Thursday, leaving the Nasdaq down around 10% from its February record high, after remarks from Federal Reserve Chair Jerome Powell disappointed investors worried about rising longer-term U.S. bond yields.

Goldman Sachs also forecast the 10-year German bund yield , which has been in negative territory since May 2019, to rise to 0% by year end. It was last at -0.311%.

The 10-year gilt yield, which was last at 0.733%, was projected to climb to 1.10%, while the 10-year Japanese bond yield, currently at 0.136%, was seen reaching 0.3%.

Goldman Sachs also projected that the breakeven inflation rate on 10-year Treasury Inflation-Protected Securities could be boosted to 2.4% to 2.45% from the current level of about 2.2% due to "the combination of an on-hold Fed, strong realized inflation, and a substantial reduction in slack."

(By Karen Pierog in Chicago Editing by Matthew Lewis)


© Reuters 2021
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