U.S. one-hundred dollar banknotes are arranged for a photograph in Hong Kong, China. (Photographer: Paul Yeung/Bloomberg) 

Goldman Fund Says Bond Market Has Gone Too Far, Yields Will Rise

(Bloomberg) -- Bond yields are poised to rebound as gains in Treasuries and a market gunning for Federal Reserve interest-rate cuts are at odds with a U.S. economy on firm footing, according to Goldman Sachs Asset Management International.

“When you see the 10-year at 2.4% that just looks too low to us,” James Ashley, the money manager’s head of international market strategy, told Bloomberg TV in Hong Kong. “In the short term, while you have these tensions and this uncertainty, of course you could potentially see yields grind lower. But by the end of the year something closer to 2.7%-ish is somewhere where we would be expecting the U.S. 10-year.”

Goldman Fund Says Bond Market Has Gone Too Far, Yields Will Rise

The 10-year yield touched 2.35% Thursday, its lowest since March 28 when it tumbled to levels last seen in 2017. Treasuries were set for their second weekly advance.

There’s every reason to want to own Treasuries right now. Weak data in China and the U.S. this week highlighted the fragility in the global economy and an escalation in trade tensions left many running for cover. As financial conditions tighten and bets ratchet up that the Fed will need to loosen policy, many investors are positioning for lower yields.

Not Ashley at Goldman, who says the expansion in the American economy can remain intact despite the U.S.-China trade war. His estimate is in line with forecasts compiled by Bloomberg that see a 2.73% yield on 10-year notes by the end of 2019.

“Sure, there is going to be a moderation in growth relative to last year, and of course the trade tensions do not help things -- that will probably shave another tenth or two off U.S. growth,” he said. “But we are still looking at growth this year that is going to be at or above U.S. potential. The Fed will just wait on the sidelines until there is a clear direction which way the economy is going.”

©2019 Bloomberg L.P.