Goldman Sachs(US:GS) Goldman Sachs·2025-05-19 02:35Investment Rating - The report raises the end-2025 US 10-year yield forecast to 4.5% from 4.0% previously, indicating a bullish outlook on US yields [1][6]. Core Views - The larger and faster de-escalation in US-China tariffs has reduced the downside risks for US growth, prompting a reassessment of yield forecasts [1][6]. - The report suggests that the combination of a smaller mechanical tariff headwind and a reversal in financial conditions supports higher long-term yields [6][31]. - The report maintains a bullish stance on Gilts, expecting a substantial rally at the 10-year point, with long-end risk premiums compressing compared to the US [1][6]. Summary by Sections United States and Canada - The US 10-year yield forecast has been revised up to 4.5% for year-end 2025, reflecting a reassessment of the US outlook due to tariff reductions [6][31]. - The Federal Reserve is expected to begin a quarterly cadence of cuts starting in December, reaching a terminal rate of 3.50-3.75% by June 2026 [6][31]. - The report anticipates a steeper CAD curve due to a more supportive domestic fiscal backdrop and a revised 10-year yield forecast of 3.50% for Canada by year-end 2025 [13]. Europe - The report indicates that the risks around the European front-end have shifted, with expectations of two more ECB cuts, but a less accommodative path beyond that [14][20]. - The Bund yield forecast remains unchanged at 2.80% for end-2025 and 3.25% for end-2026, reflecting fiscal expectations [14][20]. - The report highlights that the German curve is influenced by risk sentiment and fiscal expectations, with a potential for fiscal expansion to support growth [14][20]. United Kingdom - The UK is showing progress in moving out of the "low-growth, high-inflation" quadrant, with improved fiscal credibility suggesting a better outlook for Gilt risk premia [20][31]. - The report recommends long 10-year Gilts versus USTs, with an entry point of 51 basis points and a target of 10 basis points [20][31]. Japan - The report revises the forecasts for 5-year and 10-year JGB yields up by 20 and 30 basis points, respectively, to 1.3% and 1.8% by end-2025, due to diminished recession risks [25][27]. - The BOJ's normalization cycle is expected to be prolonged, with a medium-term neutral rate of 1.25-1.5% [31]. Global Outlook - The report emphasizes that global growth concerns will cap Gilt yields in the near term, but ongoing worries about supply and risk premiums remain hurdles [31]. - The report suggests that the macro backdrop of moderate growth and easing policy presents a favorable environment for harvesting vol carry in rates [10][31].