Goldman Lowers Treasury Yield Forecasts on Rising Fed Cut Bet

MaelBusiness2025-07-054050

(Bloomberg) — Goldman Sachs Group Inc. (GS) has lowered its forecasts for US Treasury yields, pointing to the increased likelihood that the Federal Reserve will cut interest rates sooner than previously expected.

Most Read from Bloomberg

Foreign Buyers Swoop on Cape Town Homes, Pricing Out Locals
NYC Commutes Resume After Midtown Bus Terminal Crash Chaos
Massachusetts to Follow NYC in Making Landlords Pay Broker Fees
Struggling Downtowns Are Looking to Lure New Crowds
What Gothenburg Got Out of Congestion Pricing

Strategists including George Cole wrote in a July 3 report that they expect two- and 10-year yields to end the year at 3.45% and 4.20%, respectively, part of a lowering of yield forecasts at every major maturity. They had previously expected those benchmark yields to finish the year at 3.85% and 4.50%.

The move came after Goldman’s economists this week revised their expectations for Fed rate cuts over the course of the year. The economists now think the central bank will cut rates in September, October and December, having previously expected just one cut at the end of the year.

The latest forecast by the Wall Street bank’s economics team came before strong headline jobs numbers on Thursday, which eased pressure on the Fed. But Goldman’s rates strategists were undeterred, pointing out that the strength of the data was undercut by the outsized contribution of government hiring and a small drop in the labor participation rate.

Predicting where Treasury yields are going has become an increasingly complicated task for Wall Street analysts, who are being forced to juggle the likely inflationary hit from tariffs with expectations that the dent to real income could ultimately hit spending and economic growth. President Donald Trump is set to sign a $3.4 trillion fiscal package later Friday, which includes tax cuts, adding to concerns over increased government borrowing to offset a decrease in revenue.

Goldman’s revised forecast is slightly more dovish than the wider market. The average strategist forecast compiled by Bloomberg is for 10-year yields (^TNX) to hit 4.29% in the fourth quarter. The yield was 4.35% on Thursday, before closing for a public holiday.

Overnight-indexed swaps signal a more than 70% chance of the central bank cutting the policy rate by September, followed by another reduction before the year-end. Bloomberg’s economist survey projects subdued US growth in the coming quarters, as higher tariffs threaten to weigh on consumer spending.

“A benign path to lower short-term rates can dilute a potential source of additional fiscal risk premia and improve the economic appeal” of owning Treasuries, the Goldman strategists said. “We see scope for deeper cuts to support lower yields than previously envisioned.”

Story Continues