Goldman Sachs sees Treasury yields settling into a new trading range

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Goldman Sachs on Treasury yields

Highlights

Goldman Sachs predicts the U.S. 10-year Treasury yield will stabilize in a 4.75% to 5.0% range, with rate volatility moderating if energy price relief holds.
Goldman notes European markets have already removed about 40 basis points of ECB hike risk through 2027 as geopolitical and energy risk premiums ease.
The bank highlights that sustained energy relief could compress the UK inflation risk premium further, supporting Gilts, while Canadian front-end longs may become attractive on hawkish U.S. spillover.

Yield outlook across major bond markets

As reported by CNBC, Goldman Sachs strategists led by William Marshall say conditions are forming for government bond yields to move into a more stable phase, provided volatility in risk assets eases further and relief in energy prices persists.

In a note published late Friday, the bank says the pieces are in place for yields to settle into a range and for rate volatility to decline. The U.S. 10-year Treasury yield is around 4.87% after rising above 5.25% in early October, while the MOVE Index, which tracks Treasury option volatility, stands near 93 after topping 113 earlier that month.

For the U.S., Goldman says a more stable phase for risk assets could allow the 10-year Treasury yield to establish a better-defined 4.75% to 5.0% range, with scope for rate volatility to moderate. In Europe, the bank expects the five-year segment to outperform on the curve, noting that markets have already removed about 40 basis points of European Central Bank hike risk through the end of 2027 since the late-September peak in yields.

Goldman says that repricing in Europe is reasonable because improving geopolitical sentiment is consistent with a lower oil and gas risk premium and, ultimately, softer price pressures. Still, it adds that there is a limit to how much very front-end pricing can fall in the near term without firmer evidence on energy supply or greater clarity on winter weather.

Energy prices remain key to market direction

In the UK, Goldman says the bar remains relatively high for sustained additional front-end cheapening, though renewed energy concerns could still bring hike risks forward. That leaves the very front end vulnerable to flattening even as the bank maintains a medium-term steepening bias for the broader curve.

The bank also says the inflation risk premium in UK bonds remains above its mid-October level. If energy relief is sustained, that premium could compress further and provide another source of support for Gilts.

For Canada, Goldman says any hawkish repricing triggered by spillovers from the U.S. market would create an opportunity to re-engage in front-end long positions. Across regions, the bank's view suggests bond markets are becoming more sensitive to cross-asset volatility and energy trends as investors reassess the path of inflation and monetary policy.

In our earlier article on Mario Draghi’s warning about the policy trade-off between inflation control and long-term growth, we highlighted the risk that keeping interest rates above growth for too long can worsen debt dynamics and raise inflation premia. We also noted his view that central banks should prioritize price stability while avoiding unnecessarily restrictive rate paths that could choke off investment, and that clearer policy communication can narrow the range of expected rate outcomes and reduce market volatility.

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