Goldman Sachs Adjusts Bond Recommendation to Neutral as Inflation Eases

Goldman Sachs has indicated that bonds are becoming increasingly appealing due to easing inflation and the termination of central bank policy tightening. This follows a global bond rally and speculation that the US Federal Reserve and Bank of England have halted their rate hikes. The firm has revised its bond recommendation to neutral, marking its first adjustment since June 2020.

This change takes place amidst an ongoing bond selloff, unexpected positive data, and the impact of rising long-dated bond yields on the economy. Goldman Sachs’ forecasts suggest that 10-year Treasury yields will remain around 4.6% over the next year, which is close to the 300-year historical average. While concerns about bond supply may lead to temporary yield overshoots, these are anticipated to be brief.

Officials from the Federal Reserve share this outlook, noting that the recent surge in Treasury yields—equivalent to roughly four rate hikes according to Goldman Sachs—has reduced the need for further rate increases.

Despite these developments and their neutral bond position, Goldman Sachs opted not to recommend an overweight stance on bonds in September, citing the strong performance of the US economy. The firm expects a slowdown in US growth in the fourth quarter but rules out the possibility of a recession.

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